The real estate industry talks a lot about sales numbers. Whether it’s how many sales took place last month or last year, or how many sales took place here, or there, we love to talk about transaction numbers. Down 10% compared to this time last year, or 400 more sales this month compared to last month and so on and so on.
While those numbers are (arguably) interesting in their own right, we don’t often talk about the number of sales and whether they’re representative of the number of homes of that type. This is pretty crucial as the number of sales of a particular housing type without mentioning the number of that type in the market can be misrepresentative.
Here’s an analogy that explains what we mean.
Who wants dinner?
Say we tracked a family’s food intake at their most recent meal together and then shared some interesting statistics and Mom, Dad, Teenager and Toddler.
- The family ate a total of 128 individual food items.
- Mom ate 20% of the total meal
- Dad ate 35% of it.
- Teenager ate 3% of the meal, or barely any of it.
- Toddler ate 41%, which is not normal for most families.
Without any detail about the 128 individual food items, we’re left to draw some conclusions that may or may not be accurate.
The first two stats seem reasonable as Mom and Dad eating between a fifth to a third of the total meal doesn’t sound terribly off, though perhaps Dad could take a breath in between bites. The teenager eating 3% is quite alarming and might make you wonder if he was sick and barely touched his meal. The toddler eating 41% of the total meal probably conjures images of a very large, very round child.
If we start to get into the specifics of the meal, our interpretation changes dramatically.
- Dad had two pieces of chicken, a baked potato and two rolls, plus 40 peas.
- Mom had one piece of chicken, a potato and 24 peas.
- The teenager ate just 3% of the 128 individual food items, or 4 items total. He ate two pieces of chicken, one baked potato and one roll. He hates peas, so he didn’t have any.
- The toddler that we thought might be mistaken for a beach ball ate 53 peas. She loves ‘em, and that’s all she would eat of the dinner.
Stories about the number of real estate transactions suffer from a similar challenge in interpretation. Just looking at the number of sales without talking about the sales per housing type is the most common way these stats are reported and you can see how it could cause a misinterpretation. If sales are up, but it turns out that most sales were condo apartments – and you didn’t know that – you might be surprised to see that sales of houses in your area were so slow.
There’s an additional nuance that is rarely discussed in real estate sales numbers, which is asking whether those sale numbers are representative of the mix of housing stock we have in the area. Just like the toddler appears to be consuming the largest portion of the family’s meal until we find out that peas make up most of the meal on a count per item basis, we need to know the distribution of housing types before we can fairly interpret the sales numbers.
Let’s look at the housing types in Toronto to see how they are distributed.
Welcome to Toronto, land of Condos!
When we look at the Land Registry, we are able to see some statistics as to the break down of housing types across the city.
The most common type of housing in Toronto is, by far, apartments. They make up two-thirds of the total housing stock in the city, with 66% of all housing in Toronto being apartments.
The next most common is detached homes, which make up close to a quarter of housing supply in the city at 23% of all housing.
Semi-detached and row houses (also called townhouses) make up quite small percentages of the housing stock in Toronto, at just 6% and 5% respectively. That may be quite surprising if you live in a neighbourhood where there are lots of semis or townhouses, but in lots of parts of the city there are none at all.
We know the percentages of housing types in Toronto now, so how do the number of sales compare?
Everyone wants to sell their townhouse apparently.
When we pulled the sales for the city of Toronto in 2023, there are some significant differences between what type of homes sold versus the percentage of the housing stock for each type.
Apartments make up two thirds of the housing in the city, but accounted for just over half of the sales in 2023. While a lot of people were selling apartments, not nearly as much as those who owned apartments.
In contrast, the number of sales of detached houses was 28% of the total sales last year, despite making up just 23% of the total housing stock in the city.
Semi-detached sales were 9% of the total sales in 2023, but just 6% of the total housing stock.
The big outlier in the sales last year was the number of row (or townhouse) sales. Townhouses make up just 5% of the housing stock, but they accounted for almost double that number of the sales last year, with 9% of all sales in Toronto in 2023 being townhouses.
So, which one is the plate of peas?
The reason that comparing sales numbers as a percentage with housing types as a percentage is important is because you can easily make a mistake like we initially did with the analogy of the family dinner. Let’s review the housing stock percentages with the housing sale percentages to see what we mean.
If you thought that Toronto was a city of mostly freehold homes (detached, semi-detached and townhouses), then you’d be stunned to hear that more than half of the sales last year were apartments. You’d start to make assumptions about no one being able to afford houses anymore and talk about why apartments were the only thing saving Toronto’s real estate agents from financial ruin.
When you know that 66% of Toronto’s population lives in an apartment, the fact that only about half of the sales last year were apartments takes on a whole different light. Yes, real estate in Toronto is expensive, but apparently townhouses were affordable enough that a lot more people bought them last year than live in them, at least on a percentage basis.
As crucially, just like a pile of peas on a plate might individually make up a high percentage of the total meal, the various price points for different housing types dramatically impact percentage changes in a given market. If you read that prices are down 10% month over month, is that because the peas (the lower priced apartments) dropped in value massively, or is it because the chicken (detached houses) went down a bit and that had an outsized impact on the market? Composition, whether it is in a real estate market, or on a dinner plate, matters.
Understanding stats and looking deeper into what’s contained with the headlines is our plate of peas. Uh, cup of tea. If you’re thinking about buying or selling, then you should work with agents that understand the market, both in terms of sales as well as composition. Get in touch with us so that we can look deeper into your market!
