Seasonality in Real Estate: How Weather and the Time of Year Affect Housing!
Weather and the time of year have a big impact on housing activity, and in every housing market there are times of the year when fewer homes sell. For most, that time of year coincides with the winter months, and in much of Canada, that’s the case right now.
But no matter where you live, it’s important to know how seasonality affects the housing market. So let’s look at the current housing numbers, how seasonality affects them, and what it means for you if you’re looking to buy or sell.
With few homes available, sellers are in pole position
Last year, limited inventory dominated the headlines for the real estate industry, and that trend looks to continue this year. Generally speaking, a 6-month supply of homes (meaning it would take six months at the current sales pace to sell all the homes on the market) represents a balanced market, one in which there are enough homes to meet demand. For much of 2015, inventory in Toronto remained well below a 6-month supply, and will likely remain so for 2016. Currently in Toronto we stand at from 2 months in the East end to 3.5 months in the West end, while cities like Calgary are in a BUYERS market with more than 6 months of inventory. This is one reason we say that Real Estate is LOCAL!
Why is inventory so constrained? Part of the sharp drop in December is due to the seasonal slow down. Cold weather and holidays keep many buyers out of the market and many sellers waiting for demand to pick back up. Existing home inventory is low as well. Even by the end of January 2016, existing inventory had dropped by 14% compared to January 2015. A combination of factors, such as locked-in low interest rates and a sense that home prices will continue to increase, are keeping current homeowners from listing their homes.
If you’re thinking of selling, this market is very much a seller’s market. When inventory is scarce, buyers are forced to compete over the few homes for sale. Homes are selling faster, and in many markets bidding wars drive home prices up well above asking. At the very least, you’ll be in a strong negotiating position.
Economic Conditions and Home Affordability Continue to Sideline Buyers
For buyers, the market is tough, and the low number of first-time buyers illustrates just how tough it is. It is increasingly difficult for first-time buyers to even get into the Toronto housing market at these prices. The condo market offers some “relief” there as the average condo is “digestibly” priced, compared to the average cost of a freehold home. And so the Rental Market is attracting many young would-be buyers, while they wait out a cooling of home prices.
Many factors are keeping first-time home buyers sidelined. Despite a strengthening economy and job growth, wages have remained relatively stagnant. At the same time, rent prices are rising in condo apartments and continue to rise. I recently posted a blog about developpers who are now trying to address rising rental costs by providing more purpose built buildings in the GTA. Combined, these factors are preventing millennials from saving enough for a significant down payment.
At the same time, home affordability continues to suffer. Home prices have risen quickly over the last three and half years, again outpacing wage and job growth. Prices are expected to rise more modestly this year, somewhere around 4 to 5 percent.
These factors combined with limited inventory are making it difficult for buyers to find the home they want at a price they can afford. However, if you’re thinking of buying, it is important to start looking sooner rather than later…
Mortgage Rates & Increasing Finance Accessibility
In February, mortgage rates remain near record lows. Despite tough market conditions, these rates present an excellent opportunity if you’re thinking of buying.
If You’re Thinking of Buying, Act Sooner Rather Than Later
If you’re thinking of buying a home, it’s important to act sooner rather than later. As the year goes on, affordability will continue to suffer. With home prices expected to increase around 4 to 5 percent this year and mortgage rates expected to begin to slowly rise, the longer you wait to buy, the less home you’ll be able to afford. Even small increases in mortgage rates and home prices can have a large impact on your future monthly mortgage payment!
For Access to February’s Toronto Real Estate Board stats contact me for help determining how they affect your specific real estate decisions!
If you (or someone you know), are looking for a Realtor who cares MORE about focusing on you, your concerns, goals and the successful purchase or sale of YOUR unique home, than they care about their volume of transactions and awards, please let me know the best way for me to connect, as I would love to offer my highly personal service. Contrary to that old expression, not only IS this business, but it IS personal! And, please, I encourage you to ask me any questions you may have about this post. I value your input and appreciate the time you took to read it.