A Shift From Peak Activity - Buyers vs Sellers

GTA Real Estate Markets Are Seeing A Big Shift, As Buyers Drop Faster Than Sellers.

CREA (Canadian Real Estate Association) data shows the sales to new listing ratio (SNLR) fell in May and it is anticipated June results will be similar.  This was the fourth consecutive month the ratio has fallen.  What does this mean for you if you are considering buying?

Understanding Sales To New Listing Ratio

While the SNLR is still high, buyers are retreating from buying faster than Sellers.  The majority of markets are now seeing ratios fall, and are much lower than the peak back in January 2021.

The sales to new listing ratio (SNLR) is one of the ways in which I measure how hot a market is for clients.  Rather than just looking at how many people are buying or selling, it compares the ratio between new listings and how many are sold in a given time period.

The higher the ratio of sales to new listings, the faster inventory is being absorbed by the market.  In this case, prices usually rise to take advantage of the hot demand ( or another way to look at it is buyers offer more to crowd out others).

Lower ratios mean more inventory is building, often resulting in price cuts.  This can be referred to as a typical supply and demand shift.

Sales To New Listing Ratio

All home types (data from TRREB June 2nd, 2021

Area                            May 2021 SNLR          Previous Month                Months of Inventory

Toronto                     57.5%                                   56.8%                                       1.6 ⬇︎

Durham                     78.9%                                  78.5 %                                      0.6 ⬇︎      

York Region             62.0%                                   61.0%                                      1.5 ⬇︎

Making Sense Of Ratios

There are a few general guidelines to make sense of ratios.  You probably recognize the terms:  Buyers Market, when the SNLR is lower than 40 percent, a Sellers Market, when the SNLR is above 60 percent,; and a Balanced Market, when the SNLR is between 40 -60 percent.

These are guidelines, in practice, and generally adopted by real estate professionals.  Of course, each market responds to its own unique long-term ranges.  It does however give an idea of the direction of things.

Velocity.  This is one thing to be aware of.  Like most indicators, a fast-rising ratio can see a market act like a seller's market, even though the reading may be a buyers market.  A fast-falling ratio can see prices stall which is where we are today (June 2021).

Seeing Buyers Drop Out Of The Market

Existing home sales fell faster than new listings last month.  The seasonally adjusted aggregate SNLR fell to xx percent in May, down X points from the previous month.  It was the fourth consecutive month to see the ratio slip.  Not quite a balanced market just yet, but a very different market from a few months ago.  Pressure is starting to release as the economy reopens.

The Takeaway: Is Now The Time To Buy?

From experience, I have found that home buyers and sellers enter the market because of lifestyle requirements and specific needs.  Timing the market has proven to be the most difficult thing to accomplish and over time real estate has proven to be the most beneficial long-term equity growth vehicle for Canadians.

Why should you consider buying now?

1. Interest rates.  They are at historical all-time lows and taking advantage of these rates today means paying less over the long term.  Or another way to look at it is to calculate the purchase price today at 2% or less for a mortgage vs how a home has to fall in price at a higher interest rate to be equal.  When the price has to drop significantly in order to offset the long-term interest charges it doesn't make sense to wait.
2. Less competition.  With many homebuyers pulling back will mean you have fewer buyers to compete with and more leverage in your offer.
3. Absorption rates.  With fewer and fewer homes selling than coming on the market provides for an increase in inventory.  More choices mean more opportunities to purchase without pressure or competing offers.  No more BIDDING WARS!
4. Leverage.  You have more control over negotiating with a seller whose property is sitting on the market.  Leveraging your offer on your terms such as, conditional offers on inspection, appraisal, finance, sell of another home, etc.)
5. Sellers that need to sell.  With buyers dropping out of the market many sellers that purchased a home with a pending closing date may not wish to bridge the cost of carrying two properties for a short time period and are more willing to accept a lower price than they originally had hoped for.  Financial stress and worry are big factors for a seller who may be caught between two properties.