This month we explore low inventory levels and demand shock in Toronto's housing market.
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“Where Have all the Houses Gone?” asked a New York Times headline last month, noting the significant decline in the number of homes available for sale (the inventory of houses) in many U.S. cities.
Similar questions have been raised about Toronto’s housing market over the past six months as low inventory levels have led many economists and housing analysts to conclude that reluctant sellers are the problem as this Toronto Star article notes “sellers don’t want strangers traipsing through their homes in a pandemic and that is causing people to hold off listing.”
But many are confusing inventory with supply. The inventory of houses reflects the number of properties available for sale at any given point in time, usually measured at the end of a month. The supply of new listings refers to the number of properties being listed for sale by sellers each month.
Toronto’s housing market during the Covid-19 pandemic has not had a shortage of supply. Since June 2020, new listings have been up by 31% year-over-year and last month alone new listings were up 43%.
Inventory levels are low because the demand for houses amongst buyers is significantly outpacing the supply of new listings. Housing supply can never respond fast enough when sales are rising 50% over last year. What we are seeing today is a demand shock caused by Covid-19 related shifts in demand (for larger homes, etc.), record low interest rates and an irrational exuberance in the market (more on this in the next section).
Once this demand shock is behind us, I suspect Toronto’s housing market will not look as undersupplied as it does today.
Keeping an Eye on the Market
Read my full analysis on this and other key trends in the March 2021 Move Smartly Report
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John Pasalis is President of Realosophy Realty, a Toronto real estate brokerage which uses data analysis to advise residential real estate buyers, sellers and investors.
A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).