TREB: Tightening market will mean higher prices

The article below is the TREB President's Column that appears every Friday in the Toronto Sun's Resale Homes and Condos section.  This weeks article explains how the MOI indicator, Months of Inventory indicator that was recently introduced,  reflects current market conditions and what expectations can be for the year ahead.  

According to the article the GTA market is experiencing tight market conditions and the combination of not a lot of listings and low borrowing costs will result in the average selling price trending upward in 2012.

See the full article below for further explanation about the MOI indicator and current market expectations.


Tightening market will mean higher prices

January 27, 2012 – I’m excited to share with you, a recent reporting addition to TREB’s monthly housing market statistics report.

Starting with its November 2011 Market Watch publication, the Toronto Real Estate Board (TREB) has been publishing a new Months of Inventory (MOI) indicator.  MOI shows how long, on average*, it would take to sell all actively listed homes assuming the level of sales remained the same and no additional homes were listed.

When the MOI trends downward, the market is tightening with fewer listings from which buyers can choose.  Generally speaking, tightening market conditions translate into more competition between buyers and more upward pressure on the average selling price.  When the MOI trends upward, the opposite would be true: competition between buyers will ease and the rate of price growth will likely moderate.

The average MOI was 2.3 months over the last two years.  In the years leading up to the recession (2000 through 2007) the average MOI was 3.0 months.  In response to tighter market conditions, the average annual rate of price growth was stronger in 2010 and 2011 in comparison to much of the pre-recession period.

The low months of inventory over the past two years resulted from very strong sales relative to the number of homes listed.  In 2011 in particular, there was a shortage of listings in the GTA.  We continue to experience tight market conditions and considerable upward pressure on the average selling price.

The strong price growth we have seen over the last two years has largely been mitigated by low borrowing costs.  TREB’s affordability indicator shows that a household earning the average income in the GTA can comfortably carry a mortgage on the average priced home, based on current lending standards.

Based on the current market tightness and positive affordability picture, TREB expects the average selling price to continue growing in 2012.

I asked Jason Mercer, TREB’s Senior Manager of Market Analysis to offer more insight.

“Barring a recession in Canada, the average selling price is expected to grow by approximately four per cent in 2012 to $485,000 dollars.  This price will remain affordable based on current lending standards.  At the same time, the lower rate of price growth in comparison to 2011 points to an easing of sellers’ market conditions in the second half of this year,” said Mr. Mercer.                  

So based on the current market tightness and positive affordability picture, we expect the average selling price to continue growing in 2012.

I encourage you to take a look at the latest reports, as well as TREB’s housing charts posted on our public website I look forward to providing more market insight in the coming months.

*The MOI is calculated by dividing the 12-month moving average of active listings by the 12-month moving average of sales.  This smooths out recurring seasonal volatility.


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