The Toronto Regional Real Estate Board published its monthly Market Watch this morning. I’ve been eager to read this edition because I monitor housing supply trends, specifically months of supply, and was interested to see how the market has adjusted to recent lending rate hikes.
For those who may not know, months of supply is calculated by dividing active listings by total monthly sales. So, if there were 10,000 active listings at the end of a month, and there were 10,000 sales that month, the months of supply would be one. This means that if no new listings came to market and the pace of sales remained constant, in one month, there would be no homes for sale.
We consider a market to be in balance when there is roughly a four to six month supply. Above six month’s supply would be a buyer’s market, and below four month’s supply would be a seller’s market. Anyone monitoring GTA real estate, and Canada in general, will know that we haven’t experienced a balanced market in many years. Rather, there have been extreme seller’s market conditions.
Looking at our market, months of inventory has risen above two only twice since January 2020. This occurred in April and May 2020, the first two months of the Covid-19 pandemic when sales were at a standstill. Since then, in months where inventory exceeded 1.5, it was due to a glut of condominium apartments, as buyers showed a preference for ground level housing and sanctuary outside the city center. Once buyers returned to Toronto’s condo sector, the inventory fell, and for the last 15 months has been at or below a one month supply.
This is what makes May 2022 so interesting. Today, the GTA is showing a 1.72-month supply, the highest in 24 months, and twice as high as it was this time last year. Clearly, some buyers are taking a pause as they consider what makes the most sense for them based on affordability, supply, and competition. But, make no mistake, this remains a seller’s market. Months of inventory is well below what we consider to be balanced.
While the frenetic pace of sales may be slowing (a good thing), and the rate of inflation may be slowing (also a good thing), we continue to see homes selling in a timely fashion and for higher prices compared to last year. I expect this trend to continue.