The average price for a Toronto home increased by 5% in October compared to the same month last year. The downward trend in sales continued last month with resale home sales down 21% over last year. The number of new listings coming on the market declined by 8% in October.
There are plenty of buyers actively looking in the market right now but the decline in new listings means they have fewer options to choose from. We can see this shift by looking at the sales-to-inventory ratio for Toronto. The sales-to-inventory ratio moved up from 31% to 36% in October moving the market further into seller’s market territory.
The sales-to-inventory for Toronto is one of the most important charts to consider when assessing the direction of the real estate market because it takes both supply and demand into account. For those unfamiliar with this measure, it is a ratio of the total number of homes that sold in a particular month divided by the total number of homes that were available for sale in that month.
October’s sales-to-inventory ratio tells us that 3.6 homes sold for every 10 that were available for sale that month.
We can see from the following chart that there is a very high correlation between changes in the sales-to-inventory ratio and changes in the average price for a home. House prices tend to rise when the sales-to-inventory ratio exceeds 20% and fall when the ratio is below 20%.
With many buyers worried about a potential decline in house values, this ratio is helpful because it really paints a picture of what changes we can expect to see if prices are going to fall. Toronto’s sales-to-inventory ratio would have to drop below 20% which means we would need to see a significant change in the market that would cause fewer buyers to buy and more sellers to sell.
While it’s definitely possible for Toronto’s real estate market to reach that point again, I personally don’t see this happening any time in the immediate future. The market in October actually moved in the opposite direction further into seller’s market territory.
Source: John Pasalis in Toronto Real Estate News
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