Has the market crash already started? Is it about to correct? Is the bubble finally going to burst? Some areas are reporting that the average sale price has come down by as much as 20% already and may continue to decrease by as much as 40%. Some recent home buyers are worried they are “underwater” owing more on their mortgage than the house is worth. Some sellers fear they missed their opportunity. What is going on in the market right now and what is likely to come?
First, a disclaimer. This particular article gets into numbers and details that if your not a numbers person, you may not find interesting. My apologies. To really get into the market statistics you really need to look at the numbers. I tried to find a balance between to much detail and not enough to get the message across.
Before we get into it, yes prices have started to come down in some markets. Is it as bad as what a few people are saying? To really understand we need to talk about the stats they use…
There is a saying among statisticians that 73.6% of stats are wrong or made up. The reason is that you can manipulate stats to show what you want them to. The more general the statistic, the more room you have for manipulation or misinterpretation. Average sale price for example is not only affected by the sale price but also by the number of properties that sold. Let’s use Hamilton for this example and round the sold price to the nearest million. These numbers are close to actual figures but rounded off to make the demonstration more clear. In March there were almost 600 properties sold for a million dollars, roughly 330 properties sold for 2 million, roughly 30 properties sold for 3 million, and 4 properties sold for 4 million. If the 4 properties that sold for 4 million decided not to sell that would reduce the average sale price by 2%. If the 30 properties that sold for 3 million decided not to sell, that would reduce the average sold price by 9.5%. The obvious reason for this is that fewer higher numbers are pulling the average up. Common sense and pretty straight forward right?
When you see that the average sale price for detached freehold houses in Hamilton was just over $1,003,000 in March, but between April 14th and 20th was $965,000 and April 21st and 28th was $945,000, you start to worry about a market crash and that the average price is coming down. BUT keep in mind that week 1 (14th to 20th) only had 159 sold properties of which nothing sold for 4 million, only 2 sold for 3 million, and 48 sold for 2 million. Week 2 (21st to 28th) saw nothing sell for 4 million, 6 sold for 3 million, and 41 sold for 2 million. So both these weeks realized fewer higher selling prices. This means less influence to pull the average higher.
What this shows is that higher end properties tend not to list and because of this obviously do not sell when the market is softening. This in turn causes the average sale price to be lower due to fewer high prices to pull the average up making the market look like it is softening even more. Possibly even that we are facing a market crash.
Further, average sale price includes all property types in a market including detached, semi-detached, townhouses, and even apartments. If you are looking to buy or sell a detached house, you should look at how detached houses are performing. As an example, over the past 3 weeks in Burlington the average sale price of a detached house has decreased by 17% from $1,835,020 to $1,509,558. During this same time townhouse prices increased by 17% from $863,929 to $1,013,923. Yes you read that right…increased.
Imagine if you were trying to purchase a townhouse in Burlington right now. You get into competition and think – according to what everyone is saying about average sales price – that prices are coming down. List price is $1,000,000 so I will come in at list and likely win. Right? Unfortunately if another agent drilled down the actual stats as I have shown you they would likely come in higher and win the offer. Knowledge is power.
So what is the point of all this? Is the market crashing? What is going to happen in the near future?
The market has seen a reduction in prices. This is in part due to buyer fatigue. They are tired of losing in competition and watching prices soar. It is also a reaction to the rising interest rates. No matter if you are an economist or just someone listening to what your mortgage broker is telling you, when you hear the term “historic interest rate increase” you’re going to pause for a moment. Also, more properties are coming on the market. The spring has always been known for increased activity. More properties mean more options. So April has been a one, two, three punch. Will prices continue to come down? I don’t think we have hit the bottom of the curve, but we are close. IF things were left as they are I think we may see that curve turn back into an increase over the next month or two. Unfortunately the BOC has mentioned another interest rate hike to address inflation. How will that affect the market, I am unsure. It depends on the amount of the increase and buyers’ attitudes at that time.
Bottom line is NOW is the best time to work with your real estate agent and trust in their knowledge from experience and the tools they have at their disposal. Things are changing quickly right now from week to week. As an agent we spend our days following it in detail. General stats and opinions may not give you an accurate picture. Your agent can.
If you have made it to the end of this article, thank you for sticking with it. Hopefully it was not too boring and I explained it well enough.
If you have any questions or concerns, please feel free to reach out. Happy to help you see the picture more clearly and I am looking forward to hearing from you.