When we think about the type of market we are in become a bit hard when we have so many different styles of homes to work with.
If you listen to the general media, you might hear we are in a strong sellers market. That might have been true for single family homes. But not for condo apartments or townhomes.
So when we are determining the "type of market" we are in, we need to first look at the activity and see where today's buyers and sellers are at.
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For the month of October, based on my average forcast model, we should expect the number of new listings to decline from last month by about 14% as an aggregate of all segements of the market.
Sales are also projected to come down by about 15% at this time based on the same modeling. However, this number might not be as accurate as most sales are conditional and aren't registered in the MLS until they are firm.
With these two metrics, we can anticipate the absorption rate to stay more or less consistent heading into November.
The key point to take home from both of these metrics is that both new listings are slowing and buyers activity is also slowing.
New Listings Are Down, So?
Now these number might sound big, but you have to note, these are new listings. Not total listings. And as I mention above, sales data for the month are very much in their infancy.
What the new listing stat tells us is the rate of replenishment is declining month over month. When you have a declining inventory, which isn't replaced, you run into issues from the consumer side. The main issue that can arise is price increases.
But home sales aren't like milk in the grocery store (or a better analogy would be toilet paper 😬). When milk goes out of stock, the demand for it remains consistent as people need this item each and every day. Some might decide to try other products like almond or soy milk, but the need for something like this is important. The consumer needs to replenish this product in some way for themselves.
With housing, if inventory starts to deminish, buyers have the option of staying put and not making a move. If this is the case, they are also not selling their home to make the shift.
And for those that do need a home, if there isn't anything for them to buy (milk), they will rent (soy or almond) and set themselves into a lease for 6-12 months until the time that they do find something that works for them.
Demand Is Also Declining For The Time Being...
As we have seen above, the number of sales are also going to be coming down this month.
This can be atrributed to seasonaility and colder weather. Not many people like to see homes in the cold nor do sellers want snow and dirty in their homes.
But I would argue that there is more in play here. In my conversations with potential buyers, each one is keeping an eye on the market for the "right home" but aren't in a rush to buy anything right away.
The assumption here is that the spring market will bring much more inventory to the market and that will be the time for buyers to take action.
The caution I would tell buyers to keep an eye on is you and every other buyer are waiting for the same increase in inventory. This will cause another frenzy in the spring. Pentup buyers will have to compete now but will have less purchasing power to do so with higher interest rates.
So although this might be a sound approach, it might not be the best for your bottom line.
As these buyers start to go into hibernation for the winter, they aren't putting their homes for sale, thus reenforcing the lack of inventory available. I have an example below.
A couple wants to sell their townhome to move into a bigger home. To do that, they would like to sell their townhome. But in order to do that, in most of the cases I see with sellers, they want to see if their next home is potentially availalble or not. So with no inventory, they don't see their next home available and don't sell. Now that first time buyer looking to buy their first townhome have one less home to select from to purchase because of the decision for the first couple.
And the cycle continues and grows.
And those that are willing to sell right now are able to ask more and more due to the lack of competition and those buyers still active are forced to abide by the higher prices.
The Rest of 2021 Looks Steady
As we have fewer listings and fewer potential sales, we should expect the absorption rate to maintain to where it is. It could potentially come down to that 30% mark where I would consider our market balanced.
All the news nowadays is about the pricing index and inflation. One tool to combat higher inflation is a higher interest rates. But since the BOC feels the high inflation is a blimp, I don't see them making changes to the rate anytime soon. And that means status quo will remain.
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