We all know that the 2016 real estate market in Toronto was hot in terms of price growth. TREB just released its December 2016 Market Watch report today. I'm predicting that one month from now you're going to be reading articles crying "2017 Toronto real estate prices continue to skyrocket!" Here is why.
I'll use detached houses to illustrate. [Detached represent 72% of house transactions and 42% of all transactions. As usual, all figures I use on my blog represent the 416 and not the whole GTA.]
That December price is 22% higher than January 2016 average detached price of $1,054K, so prices would have to fall by $233K to be back to last January's level. I looked at the last 20 years of TREB data (of course, "past performance is not an indicator of future results") and compared January to the preceding December (e.g. Jan '16 vs. Dec '15 and so on). It turns out that 75% of the time (15 of 20 years) January prices increased versus December. Here are the averages and highs and lows:
The record declines in both dollars and percentage was Jan '09 vs. Dec '08, right in the middle of the Lehman Brothers et al financial meltdown. We are nowhere near those kinds of economic conditions today, so that type of drop-off won't happen. That December '08 had a MOI (months of inventory) of 7.8, which was the highest in the last 21 years (as far back as TREB has monthly data). To contrast, 33 of the last 34 months have had less than 2 months of inventory. With these low supply levels, prices won't be decreasing anytime soon. Of course a month-over-month decrease is certainly possible when working with averages, but that should not be a cause for panic — three times in 2016 the monthly average was lower than the previous month and you know how hot that market was.
The Guarantee
Here are some scenarios for January. The one I've highlighted with a -1.7% decrease from the December average price ($22K) will still show January as +20% versus last year. The largest Dec-to-Jan price decrease in the last 20 years of -10.7% still winds up with 9% YoY price growth. As far as my guarantee of double-digit price growth, the chart below shows that prices must plummet at least -9.9% ($127K) this month to be up less than 10% (double-digit) YoY. I feel this is pretty safe, as far as guarantees go :)
Prediction for January
In the bottom portion of the above chart, the 1.1% change from December represents the average Jan vs. Dec change for the last 20 years, and the 1.8% represents the compound monthly climb in 2016 (if you took December 2015 and added on 1.79% every month you'd get to the December 2016 price). Given the continued low inventory situation and strength of the market in December, I'm predicting next month's "Market stays hot!" headlines will be citing a mid-to-high twenties percentage change year-over-year.
About Scott Ingram CPA, CA, MBA
Would you like to make better-informed real estate decisions? I believe knowledge is power. For that reason I invest a lot of time researching and analyzing data and trends in the Toronto real estate market. My Chartered Accountant (CPA, CA) side also compels me to perform a lot more due diligence on properties my clients are interested in purchasing. If you have better information, you should have less risk and be in a position to make better decisions for your hundreds of thousands of dollars.
Your home is the single largest investment you'll make - trust it with an accountant.
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