Tuesday, July 14, 2009

May and June 2009: The Flock Thickens!

The good old days of the real estate boom/bubble is back in the Greater Toronto Area. Buyers are flocking back into the housing market in a frenzy, bringing back multiple and unconditional offers. Sellers are laughing all the way to the bank.

The recession is far from over with unemployment continuing to climb, and yet there are plenty of cheap money (low interest rates), talk of green shoots, and "better-than-expect" news, to tempt buyers into making the leap, either thinking prices can only rise, or that they will sell for a quick profit.

Flippers are back too! Properties are being snapped up, spruced up and sold for thousands more. There was one case where some guy bought a tiny semi-detached in the film district for $280k, finished the basement, slapped on some cosmetics, and resold privately for $410k! A fool is born every minute.

Let's look at some of the charts...

New Power of Sale Listings

Despite the frenzy, the number of new power of sale listings remain at a somewhat elevated level, compared to the past couple of years, although in absolute terms, two hundred or so new power of sale listings pales in comparison to the over ten thousand homes sold in June.

Firm Sales Minus Conditional Sales

This chart measures the difference between the number of homes that have sold firm and the number of homes that have sold conditionally. The idea is: if the gap between the number of firm and conditional sales is large, this implies many buyers are willing to buy properties without conditions, and therefore the market is a sellers' market. On the other hand, if the gap is small, few buyers are willing to buy properties without conditions, indicating a buyers' market.

The chart below shows that the gap has widened, after reaching very low levels between December 2008 and February 2009. The market has become a sellers' market once again.

However, the overall trend of the gap in firm and conditional sales is still going down - that is the sellers' market has been losing steam, with a brief and pronounced buyers' market back in the winter of 2008.

Deals Fallen Through

A deal falling through means an aborted transaction (e.g. buyer had cold feet). Since peaking in November 2008, the deals fallen through has dropped back to the norm of the past couple of years. Of note, is the up-tick of fallen through deals in June.

The second half of 2009 should be interesting!

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