And Now… For the REAL Spring Market

Toronto Spring MarketThe Toronto area market has been unusually hot during the first 2 1/2 months of this year, due to a combination of low inventory of homes for sale combined with continued very low mortgage interest rates. In February, prices were 11% higher than at the same time in 2011, and so far in March, while prices haven’t risen much further, they are still about 10% than last year. As you can see in the chart below, prices in March tend to increase less rapidly than in February. This phenomenon is consistently reproduced every year, and has been dubbed the “March Break Effect”. Sellers and real estate agents have come to understand that the March Break week is not the best time to list properties, as so many families go away that week and so fewer buyers are around to bid up prices. Many real estate agents would prefer not to list or show properties that week anyway, as they too want to get away… and so the slight lull in activity during March has become sort of institutionalised. The result is that the market has become divided into the “pre-spring” market from late January until early March, followed by the “real” spring market from late March until mid June. The real spring market is now just underway, and my guess is that “you ain’t seen nothin’ yet”. Despite recent hints that the government is thinking about further tightening mortgage rules, it seems very unlikely that this, or an interest in interest rates will happen before mid-year. Also, while we will certainly see some increase in the inventory of homes for sale over the next couple of months, it’s unlikely that this will improve the balance between buyers and sellers by much. One of the biggest reasons for this is that most move-up buyers (the main source of new listings) want to buy before they list, because they know how hard it is to buy and how easy it is to sell. Very few want to sell first, as they would then risk either having to move twice (e.g., to a rental while they look, and look, and look…), or settling for something less than what they want because they don’t want to move twice. In this way, the low inventory tends to become self-reinforcing – the harder it gets to buy, the more the inventory tends to fall, which makes it even harder to buy – and so on. Absent an upward jump in interest rates, or some other “jolt”, this pattern seems unlikely to change. Expect the crazy bidding wars to continue, at least until the summer.

Toronto Area Prices Mid March 2012