Extraordinary demand coupled with low listings are making County real estate unsustainable.
With September sales at 225% of last year and inventory at 1/8th of normal levels, resale homes in the County are becoming harder to find than toilet paper last March.
Unprecedented Demand
Fuelled by a combination of cheap mortgages, a booming Toronto market, the growth of working from home and a desire to flee Toronto as Covid-19 returns, existing homes sale in September reached 225% of a year ago.
Shrinking Supply
In a normal year, the number of homes on the market increases during the fall as summer sales tail off. However, this September active listings for existing homes fell to 40% of the number of listings of a year ago.
In fact, the situation for people looking for a year-round residence is even worse than that. Of the 134 listings for existing homes on the market at the end of September, 20 of them were for 3-season cottages that cannot be occupied during the winter.
All-Time Low Inventory
Most years there is a 6-8 month inventory of existing homes for sale in September. With this year’s extraordinary high sales and limited listings, the inventory in September was just over 1 month even with seasonal dwellings included, another reason why County real estate is unsustainable.
Homes Selling Quickly
In today’s extreme sellers’ market you’d expect homes to sell much more quickly than normal but that doesn’t appear to be the case when judged by a common metric called average days on market (DOM). The average DOM for September was about the same as last year.
However, the average DOM glosses over something fundamental: good homes are selling extremely fast while dogs that have been on the market for a long time continue to languish.
Instead of the average days on market, it’s much more useful to look at the percentage of homes selling within 7 days after they are listed.
Traditionally around 5 % of existing homes sell in 7 days or less after they’ve been listed. This year was not that different…until September. With the extreme demand and limited supply in September, close to 30% of homes sold within seven days of listing.
More Buyers Paying Asking Price or More
For the past four summers, roughly 20% of existing homes sold in the County have sold at or above listing price. During this summer’s sellers’ market, the percent rose to 81% during August, followed 48% at or above listing price in September. The September decline reflected sellers increasing awareness of the hot market, leading them to increasing typical listing prices.
Prices Continue to Climb
The average selling price for exiting homes continued to increase during the summer, with the average house price for this July-September up 24% from the summer of 2019.
Implications
There’s a simple reason that makes County real estate unsustainable: Covid-19 means many people from Toronto want to move here, but people who live here don’t want to leave. As a result, listings don’t keep up with demand even as prices increase.
Under these conditions, buyers will have to move quickly and be prepared to offer listing price or better.
On the other hand, although the market is extremely hot right now, there is no guarantee that this will continue.
Over the long run, the demand for County real estate is likely to be strong, especially with working from home as a permanent part of the landscape for knowledge workers.
On the other hand, the market is highly unpredictable in the short run, and a decline in prices can’t be ruled out depending on the course of the current recession and Covid-19. This is not the time to over-extend.
A note on methodology: This report specifically concerns existing home sales and excludes new construction. The market behaviour is different for each of these types of homes and combining them together clouds what’s happening in the market. First, many buyers coming to the County are not looking for a new home in a sub-division. Including listings in sub-divisions makes it appear that the selection is better than it really is. Second, most listings for new construction represent the promise of a home to be built sometime in the future, and not a home that can close in the near term. Finally, buyers of new homes pay the full asking price with no negotiation over the base price, while re-sale homes can sell below or above listing price – combining existing homes and new homes together masks price trends for existing home sales. New homes represent an important and growing part of home sales in the County but need to be analyzed separately to avoid misleading conclusions.
Image Credit: Getty/iStock
Treat Hull spent three decades as a management consultant and marketing executive before moving to the County and taking up real estate. He is broker/owner of Treat Hull & Associates Ltd., a Prince Edward County brokerage which takes no listings and represents only buyers.
