Covid-19 demands weekly real estate market reporting to understand the impacts
Friday Apr 10th, 2020Share
I've been pretty inspired lately by some folks on twitter who I admire for their scientific approach to real estate. Almost all of them have started looking at data for their markets on a weekly basis, rather than a monthly basis. The objective of this is to figure out what's happening to the real estate market more accurately, so we can be anticipatory, rather than reactionary in our behavior towards the market.
I've decided to follow suit and start reporting weekly data on freehold property transactions for York Region, here's what I've come up with. I understand this may be missing some context without condo product, so I will try to add that in as I progress weekly. If you have any feedback on how I can make this information more valuable, I'd love to hear it.
Also, if you'd like to use the spreadsheet I built for this, you're more than welcome to, send me a message.
Covid-19 Real Estate Context:
I think the most important place to start is to paint a picture of what the market looked like before covid-19. York Region was infamous for the impact it suffered from the introduction of the foreign buyers tax, with some areas suffering price declines in excess of 35%. It appeared that 2020 was the year for those individuals to recover their gains, and it couldn't have happened at a better time, given that most 2016 & 2017 mortgages will be renewing within the next 2 years.
Prior to the arrival of covid-19, York Region was experiencing a relative supply scarcity that caused prices to increase from January until mid-march in 2020’s spring real estate market.
This is an important consideration when evaluating any potential vulnerability the market may have had. Further growth was, at a minimum, put on hold while we work through covid-19 as a society. This means that purchasers in Q1-2020 who are closing in Q2+ are taking possession of properties with no active comparable sales.
What I found even more interesting in the monthly context for March 2020 is that while trade volume (# of sales) hadn't been historically high, average price had accelerated enough that total dollar volume of monthly sales was historically high. A lot of this growth has come from an increase in the price floor, which seems to be the objective of recent CMHC policy to create sustainable growth and avoid the bubble-territory that UBS and IMF have been warning us about.
Dollar volume of real estate sales in York Region
When analyzing dollar volume, March 2020 had a standout performance in spite of losing the second-half of the month to social-distancing limitations induced by covid-19. This is a result of increased price alongside consistent monthly volume, but doesn’t really give us anything of value to move forward on. This black swan event has caused us to analyze the market on a weekly basis, which is our best option given how quickly things are changing in the time of covid-19.
Covid-19 impact on Days on Market of York Region Properties
Honestly, I'm not really surprised by these changes given how difficult it is to view and transact property right now, however, I am a bit surprised at how drastically absorption has slowed already... tripling since the market peak.
This data could be unpacked in a number of ways, especially when coupled with the sale to list price ratio. I would suspect that it means that buyers are being opportunistic, and therefore, they are going for properties that have been on the market longer, and therefore, there may be a bit of a selection bias at play that we need to be aware of when analyzing this one.
Change in Sale-to-list price ratio of properties during Covid-19
We were looking for leading indicators that price could flatline or decline, this is what I'd be focusing on. While volume metrics are great, they're also really difficult to apply to a situation where volume is literally limited by a pandemic.
The sale-to-list price ratio (SL) is typically a leading indicator on what direction price could be heading. In 2020, we’ve seen the SL ratio climb from 97% to a peak of 106%, and then fall back to 98% for two consecutive weeks. This indicator tells us that sellers are accepting lower and lower prices based on their list price. If this number stabilizes at 98%, we could see a healthy half-baked spring market sustain through covid-19. If we see a supply flood similar to the vacant Airbnb condos hitting the market in Toronto right now, things could continue on this downward trend.
If you want to take a crack at it, here's what a sale price chart would look like, with all 4 metrics we have available, but so far I find any of the trends to be inconclusive. Perhaps someone smarter than me can chime in:
Change in absorption of property in York Region During Covid-19 (sales-to-new-listings ratio)
Looking at the proportionate decline in sales-to-new listings is really the biggest indicator that the market has not fallen into a microcosmic version of its prior excess-demand scenario.
In fact, it has fallen away from a sellers’ market completely, moved passed what we would call a stable equilibrium, and into a buyer’s market. Sales to new listings declined from an 87% spring-market peak down to nearly 28%, which could indicate that the volume-induced pain that covid-19 will bring to real estate in 2020 is not over yet. If listings are still hitting the market faster than buyers are absorbing supply, it is unlikely we will see an excess demand scenario again for a while.