A few days after the start of the month, you probably notice a flurry of headlines and articles about the real estate market. This happens because the Toronto Regional Real Estate Board releases the latest stats about the market and a portion of what is shared turns into news stories shortly thereafter.
If you read just the headlines, you’re going to get a very distorted view of what is happening in real estate these days. While bombastic headlines may drive views, the real story about what’s happening in real estate is often much more nuanced.
There are lots of stats that are produced by real estate boards about the transactions that take place and while the average price and number of sales get the most attention, there is actually one stat that is hugely helpful in predicting what comes next.
We’d go so far as to say that it is the most important stat of all, as it influences all of the other stats that are used in these stories and by pundits when trying to determine will happen in the market next.
It’s called the sales to new listing ratio and here’s how it works and what it means.
It’s about buyers…and sellers.
The Sales to New Listing Ratio (SNLR) tells us how many of the sales we saw this month were new listings versus existing listings.
The number of sales is of course a reflection of how many buyers did a transaction in the market in a given period. One of the most challenging aspects of predicting what is coming next is determining the number of buyers who are actually out shopping for homes. Until they actually do a deal, it is nearly impossible to state with accuracy how many buyers are out there, which is the demand side of the supply and demand calculation.
Mortgage applications are one proxy that is sometimes used to determine how many buyers are out there, but that has its own problems. Not all buyers need mortgages, not all buyers who get a pre-approval are ready to buy immediately and some who get a pre-approval have their circumstances change and the pre-approval lapsing without being used.
The number of new listings is where we get a sense of how many sellers are hitting the market and putting their properties up for sale.
When you combine these two numbers, we know how many buyers have bought and are now off the market as well as how many sellers have just entered the market.
This is hugely important, as it tells us what is happening on the demand and supply side, and it is this mix that impacts sale price and how long homes take to sell. These two are the most important considerations for sellers as they contemplate going on the market.
How do you interpret the SNLR?
The Sales to New Listing Ratio is expressed as a percentage
In the Toronto and greater Toronto market, if the SNLR is between 50% to 60% we have a balanced market, with sales equal to around half the number of new listings coming on the market. A good amount of sales and a good amount of new options means reasonable, but not excessive, price increases.
Over 60% is heading towards a seller’s market, as we have sales outpacing the new inventory coming on the market. As the percentage gets higher, we’re going into more and more of a seller’s market, which is where seller’s have more power and that means prices rise – sometimes by a considerable amount.
In extreme cases, we can have an SNLR of over 100%, which means we saw more sales in a month than inventory came on the market, meaning next month is very likely to see a price increase, as the number of total homes for sale has decreased compared to the previous month.
While we haven’t seen it often in Toronto and the surrounding area, if we are under 50%, this tells us that the we are moving into a buyer’s market. The lower the SNLR, the more of a net increase in properties available the following month. This means prices typically drop as buyers react to having lots of choices by pushing down the price they are willing to pay.
April 2022 saw big…BIG…changes in the SNLR.
Now that we’re clear on what the SNLR is and how to interpret it, it’s time to talk about what has been happening with it.
The below chart is the Sales to New Listing Ratio in the city of Toronto from the past two years. It is a dynamic chart and will be updated over time to reflect the latest stats. The below commentary is based on the data that is available as of April 2022.
You can see that starting with the arrival of COVID back in March 2020, we had an extended period where the SNLR was in the 40 to 50 percentage range. This is a buyer’s market or a balanced market, and we hit the lowest point back in September 2020. This is for both the condo and freehold market and the SNLR was definitely dragged down by the condo market, which was decimated by COVID in 2020 before rebounding in 2021.
If we look at recent months, you can see that from a high of 121% in December 2021, we have had four consecutive months of dropping Sales to New Listing Ratios. As of April 2022, we are now at an SNLR of 49%, putting us into a buyer’s market for the first time in Toronto since October 2020.
That is a significant change that predicts that prices will begin to drop in Toronto. When we look at other parts of the GTA, the story becomes even more significant.
The below chart is for Peel and you can see that the SNLR hit more than a two year low in April 2022, going down to under 40%. That means Peel is absolutely in a buyer’s market right now.
When we look at what is happening in York, we have another buyer’s market situation. With four months of consecutive dropping SNLR, the April 2022 SNLR in York is 37.6%.
Turning to Halton, the SNLR story is very similar, dropping for the 4th consecutive time and now at just under 43%, putting Halton in a buyer’s market as well.
Turning to Durham, the SNLR story is a bit different, as it went up slightly in February, but since then has been dropping, meaning our current SNLR in Durham of 46.6% is the 2nd consecutive month it has dropped and we’re also in a buyer’s market in Durham.
If we head up to Simcoe, the SNLR has also been dropping consistently and has hit a more than two year low of 34.1%. That is the strongest buyer’s market in all of the seven TRREB areas and Simcoe has seen price drops in the last three months and will likely see another in May.
The only market within the TRREB boundaries that is over the 50% level for SNLR is Dufferin, which is currently sitting at 54.2%. Despite that, April saw a two-year high in the number of active listings and while it might technically be a balanced market, it is likely going to feel like a buyer’s market there as well.
With the Sales to New Listing Ratio across the GTA ranging from 34% to 54%, there has not been such a good time for buyers in a number of years. With more interest rate hikes coming, it seems likely that we will continue to see buyers fade from the market. Unless we see sellers hold off on selling as well, it appears that we will see price drops as the market reacts to changing conditions.
If you are looking to buy or sell in the GTA, you owe it to yourself to work with agents who understand what is going on and what is coming next. If that sounds appealing, don’t hesitate to reach out to us!