September 17, 2008 -- The Greater Toronto Areaís autumn resale housing market began with moderate activity, Toronto Real Estate Board President Maureen OíNeill announced today.
With 2,726 sales during the first half of this month, activity has declined 16 per cent from the 3,236 recorded during same time period a year ago. Compared to the 2,913 transactions recorded during the first half of September 2006, activity has declined six per cent.
In the City of Toronto, 998 sales were recorded, which represents a 23 per cent decline from the 1,297 transactions recorded in the first half of September 2007 and an 11 per cent decline from the 1,118 homes that changed hands in 2006. However, activity increased 16 per cent in the first half of September 2007 from the same period in 2006.
In the 905 Region, there were 1,728 sales, down 11 per cent from the first half of September 2007, when 1,939 transactions were recorded and within four per cent of the 1,795 sales recorded during the same timeframe in 2006. However, activity increased eight per cent during the first two weeks of September 2007 as compared to 2006.
ìAlthough housing activity in the GTA remains moderate, weíre continuing to see a consistent pattern, and this stability is certainly positive news compared to markets in other sectors and in other world cities,î said Ms. OíNeill.
At $366,158 the average price of housing in the GTA has increased marginally from the $364,364 recorded a year ago and is up nine per cent from $335,208 recorded in September 2006.
In the City of Toronto, the average price is $386,524 up marginally from the $384,796 recorded in the first half of September 2007 and up 12 per cent from the $343,561 average from the same period in 2006.
In the 905 Region, the average price is $354,395; an increase of one per cent from $350,698 recorded a year ago and up seven per cent from $330,005 recorded in the first half of September 2006.
ìThe fact that prices have held firm despite moderate activity shows that consumers regard real estate as a sound investment,î said Ms. OíNeill.
The percentage of asking price that Sellers receive for their homes has also remained consistent. The list to sale price ratio is 98 per cent, as it was a year ago.
The 26,299 properties listed for sale on the TorontoMLS system have increased 26 per cent from a year ago when 20,841 homes were available. The time that homes remain on the market has increased as well, to an average of 37 days compared to 31 days a year ago.In a few areas though, activity heated up during the first two weeks of the month.
Transactions in Bowmanville (E17) increased 66 per cent from a year ago, as a result of strong detached home sales.
In Streetsville (W20) activity increased seven per cent compared to mid-September 2007 due mainly to semi-detached sales.
Vaughan (N02) saw a 20 per cent increased in transactions from a year ago due to strong sales of all housing types.
Greater Toronto REALTORS® are passionate about their work. They adhere to a strict Code of Ethics and share a state-of-the-art Multiple Listing Service. Serving over 28,000 Members in the Greater Toronto Area, the Toronto Real Estate Board is Canada’s largest real estate board. Greater Toronto Area open house listings are now available on www.TorontoRealEstateBoard.com.
You can find great local Toronto, Ontario real estate information on Localism.com Frank Bott is a proud member of the ActiveRain Real Estate Network, a free online community to help real estate professionals grow their business.
Sunday, September 28, 2008
Monday, September 8, 2008
A LOOK AT U.S. HOME PRICES FROM 2002 TO NOW –
The collapse of the U.S. housing market is now well into its third year and continues to hold U.S. economic growth hostage. Every month new housing statistics keep media attention focused on the most recent decline in U.S. home prices, reminding households that one of their most important assets continues to depreciate in value. Amidst all the attention to the recent fall in home prices, it is often forgotten that the drop in prices followed tremendous runups from 2002 until mid-2006 so that in nominal terms there is still a sizeable net gain in home values over this period.
Moreover, with all the focus on the national number, the headlines sometimes miss that there remains a significant regional element to recent house price declines. In this report we examine the performance of house prices in the 20 major cities covered by the S&P/Case-Shiller home price index over the period extending from 2002 to the present.
Doing so is useful for several reasons. First, it highlights that the current level of home prices is not particularly low – in aggregate we’ve just rewound prices to mid-2004 in nominal terms. Second, flowing from this first point, it raises the prospect for prices to fall further. Third, it sheds some light on the balance sheet implications for households depending upon when and where they purchased their home. Not surprisingly perhaps, cities that saw the highest increases in home prices earlier in the cycle are now those experiencing the biggest drops.
2002 – The beginning of the boom
As homeowners tend to stay in their homes significantly longer than one year it makes sense to take a longer-term perspective to the change in home prices.1 The current housing boom had its beginnings in the aftermath of the 2001 economic recession. By 2002, house prices were increasing at a healthy rate but had not yet reached the double- digit surge in prices that came in 2004 and 2005. 2002 is generally deemed to be the start of the housing boom and is a good point to begin our analysis. Mortgage rates were falling to historic lows and were held at a low level for another 2 years, sparking an influx of home demand and acceleration in home prices. The housing market was also relatively balanced. Single family home inventories averaged 4.7 month’s supply, slightly higher than the previou two years, which averaged 4.5 months. A balanced market looks to be in the 5.0 to 5.5 month range.
Nominal price gains are still solid
Looking at the change in home prices from 2002 to the present we find that homeowners in most major cities who bought early in the housing boom are still benefitting from an appreciation in real estate worth. Nominal prices in aggregate are up a cumulative 34% from May 2002 to
May 2008. Miami and Los Angeles stick out particularly
as cities which despite having seen striking falls in nominal
house prices over the last year are still up considerably on
a longer-term basis. In both cities nominal values are up
close to 50% since May 2002 despite declining by more
than 25% in the past year. This contrasts with cities like
Dallas and Denver, which although down less than 5%
from a year-ago are up by only 5% since 2002. By far the
best performers of the bunch are Seattle and Portland with
price gains of close to 60% since 2002. Unfortunately, there
is at least one exception to the rule that higher house price
gains earlier lead to worse drops in the current period. In
Detroit, year-over-year gains in nominal house prices never
topped 5%, yet prices over the last year are down close to
20%. Clearly, local economic conditions added to the impact
of the collapse in home values related to the fallout
from subprime mortgages, resulting in home prices that
are down 17% from their values in 2002.
But real price gains less so…
Unfortunately, the picture looks less favorable when
inflation is stripped away. The good news is that real home
prices are up a cumulative 10% since 2002, with substantial
gains in the range of 23-27% in the cities of Los Angeles,
Washington D.C, and Miami. These cities were among
those deemed most exposed to subprime mortgages and
over-building, and clearly some homeowners are still coming
out ahead in the midst of the current housing recession.
But, from a portfolio standpoint, a 10% real gain (nationally)
over 6 years averages to a 1.6% annual gain, which
isn’t a great return on assets, especially given that this rate
of return does not take into consideration a homeowner’s
expense of property taxes and maintenance. As a basis of
comparison, the average yield on 10-year TIPs issued in
2002 (10-Year Treasury Inflation Adjusted Note Due 7/
15/12) is 1.84%. The picture darkens further when you
consider that most homeowners who bought in 2004 or
later are out-of-the-money on their homes. From May
2004 to May 2008, real prices in 16 of the 20 major metro
markets are in the red, and two of the remaining cities are
barely positive. The exceptions are Seattle and Portland,
which have seen a cumulative real price gain of about 20%
each. Seattle and Portland were both late arrivals to the
house price booms taking place in the rest of the country.
Price growth peaked in these north-western cites almost
two years after the rest of the country in 2006 instead of
2004. Price growth has decelerated similarly to other cities
but their later arrival has made these markets better
performers over the later time period.
Bottom Line
Hind-sight being 20-20 it is now clear that the house
price gains that occurred late in the housing cycle overshot
fundamentals and are now in the process of correcting to
a more sustainable level. 2002 serves as a good benchmark
for the performance of the U.S. housing market under
more balanced conditions and is a likely candidate for
where prices might be expected to return to once the excess
returns of the late housing boom have worked themselves
off. Indeed, with an 11 month supply glut currently
sitting on the market alongside expectations of weak employment
and income growth over the next four quarters,
it is conceivable that there could be an overshoot on the
price adjustment. A further 5 percent nominal price decline
would take the overall retrenchment of prices since
the peak of 2006 from the 18.4 percent recorded in May
of this year to 22.5 percent. Expressed in this manner the
price adjustment appears staggering. However, assuming
consumer price inflation (excluding shelter) close to 5 percent
over the next year, this 5 percent further decline in
nominal home prices would bring the national home price
just 1% percent below the real level of 2002. In this longerterm
context an assumption of such a further price decline
does not appear heroic in the least.
From a regional perspective, it is interesting to note that
of the nine cities which have seen cumulative gains above
the 10% national average, five of them – Los Angeles,
Miami, Tampa, Las Vegas and Phoenix – are now experiencing
year-over-year declines in excess of the national
average. Given that these markets were the most inflated
before the crash in prices it should be expected that they
have the farthest to go before coming back into balance.
While the housing market may be close to a bottom in terms
of home sales, recent evidence suggests that significant
declines in house prices are necessary to drawdown the
supply of unsold homes in the most inflated markets. According
to data from the California Realtors Association,
the month’s supply of existing homes in Los Angeles fell to
9.1 in May from a peak of 20 months in October of last
year but this was accompanied by a downward move in
year-over-year prices from -4% to -24% over the same
period. While changes in existing home prices are not directly
comparable with the Case-Shiller data as they reflect
the current mix of homes for sale (and have thus
likely been brought down by forced sales of foreclosures),
this suggests that cities like Los Angeles, Las Vegas and
Miami where price growth was most excessive, will continue
to be those cities where price declines will be the
greatest.
Moreover, with all the focus on the national number, the headlines sometimes miss that there remains a significant regional element to recent house price declines. In this report we examine the performance of house prices in the 20 major cities covered by the S&P/Case-Shiller home price index over the period extending from 2002 to the present.
Doing so is useful for several reasons. First, it highlights that the current level of home prices is not particularly low – in aggregate we’ve just rewound prices to mid-2004 in nominal terms. Second, flowing from this first point, it raises the prospect for prices to fall further. Third, it sheds some light on the balance sheet implications for households depending upon when and where they purchased their home. Not surprisingly perhaps, cities that saw the highest increases in home prices earlier in the cycle are now those experiencing the biggest drops.
2002 – The beginning of the boom
As homeowners tend to stay in their homes significantly longer than one year it makes sense to take a longer-term perspective to the change in home prices.1 The current housing boom had its beginnings in the aftermath of the 2001 economic recession. By 2002, house prices were increasing at a healthy rate but had not yet reached the double- digit surge in prices that came in 2004 and 2005. 2002 is generally deemed to be the start of the housing boom and is a good point to begin our analysis. Mortgage rates were falling to historic lows and were held at a low level for another 2 years, sparking an influx of home demand and acceleration in home prices. The housing market was also relatively balanced. Single family home inventories averaged 4.7 month’s supply, slightly higher than the previou two years, which averaged 4.5 months. A balanced market looks to be in the 5.0 to 5.5 month range.
Nominal price gains are still solid
Looking at the change in home prices from 2002 to the present we find that homeowners in most major cities who bought early in the housing boom are still benefitting from an appreciation in real estate worth. Nominal prices in aggregate are up a cumulative 34% from May 2002 to
May 2008. Miami and Los Angeles stick out particularly
as cities which despite having seen striking falls in nominal
house prices over the last year are still up considerably on
a longer-term basis. In both cities nominal values are up
close to 50% since May 2002 despite declining by more
than 25% in the past year. This contrasts with cities like
Dallas and Denver, which although down less than 5%
from a year-ago are up by only 5% since 2002. By far the
best performers of the bunch are Seattle and Portland with
price gains of close to 60% since 2002. Unfortunately, there
is at least one exception to the rule that higher house price
gains earlier lead to worse drops in the current period. In
Detroit, year-over-year gains in nominal house prices never
topped 5%, yet prices over the last year are down close to
20%. Clearly, local economic conditions added to the impact
of the collapse in home values related to the fallout
from subprime mortgages, resulting in home prices that
are down 17% from their values in 2002.
But real price gains less so…
Unfortunately, the picture looks less favorable when
inflation is stripped away. The good news is that real home
prices are up a cumulative 10% since 2002, with substantial
gains in the range of 23-27% in the cities of Los Angeles,
Washington D.C, and Miami. These cities were among
those deemed most exposed to subprime mortgages and
over-building, and clearly some homeowners are still coming
out ahead in the midst of the current housing recession.
But, from a portfolio standpoint, a 10% real gain (nationally)
over 6 years averages to a 1.6% annual gain, which
isn’t a great return on assets, especially given that this rate
of return does not take into consideration a homeowner’s
expense of property taxes and maintenance. As a basis of
comparison, the average yield on 10-year TIPs issued in
2002 (10-Year Treasury Inflation Adjusted Note Due 7/
15/12) is 1.84%. The picture darkens further when you
consider that most homeowners who bought in 2004 or
later are out-of-the-money on their homes. From May
2004 to May 2008, real prices in 16 of the 20 major metro
markets are in the red, and two of the remaining cities are
barely positive. The exceptions are Seattle and Portland,
which have seen a cumulative real price gain of about 20%
each. Seattle and Portland were both late arrivals to the
house price booms taking place in the rest of the country.
Price growth peaked in these north-western cites almost
two years after the rest of the country in 2006 instead of
2004. Price growth has decelerated similarly to other cities
but their later arrival has made these markets better
performers over the later time period.
Bottom Line
Hind-sight being 20-20 it is now clear that the house
price gains that occurred late in the housing cycle overshot
fundamentals and are now in the process of correcting to
a more sustainable level. 2002 serves as a good benchmark
for the performance of the U.S. housing market under
more balanced conditions and is a likely candidate for
where prices might be expected to return to once the excess
returns of the late housing boom have worked themselves
off. Indeed, with an 11 month supply glut currently
sitting on the market alongside expectations of weak employment
and income growth over the next four quarters,
it is conceivable that there could be an overshoot on the
price adjustment. A further 5 percent nominal price decline
would take the overall retrenchment of prices since
the peak of 2006 from the 18.4 percent recorded in May
of this year to 22.5 percent. Expressed in this manner the
price adjustment appears staggering. However, assuming
consumer price inflation (excluding shelter) close to 5 percent
over the next year, this 5 percent further decline in
nominal home prices would bring the national home price
just 1% percent below the real level of 2002. In this longerterm
context an assumption of such a further price decline
does not appear heroic in the least.
From a regional perspective, it is interesting to note that
of the nine cities which have seen cumulative gains above
the 10% national average, five of them – Los Angeles,
Miami, Tampa, Las Vegas and Phoenix – are now experiencing
year-over-year declines in excess of the national
average. Given that these markets were the most inflated
before the crash in prices it should be expected that they
have the farthest to go before coming back into balance.
While the housing market may be close to a bottom in terms
of home sales, recent evidence suggests that significant
declines in house prices are necessary to drawdown the
supply of unsold homes in the most inflated markets. According
to data from the California Realtors Association,
the month’s supply of existing homes in Los Angeles fell to
9.1 in May from a peak of 20 months in October of last
year but this was accompanied by a downward move in
year-over-year prices from -4% to -24% over the same
period. While changes in existing home prices are not directly
comparable with the Case-Shiller data as they reflect
the current mix of homes for sale (and have thus
likely been brought down by forced sales of foreclosures),
this suggests that cities like Los Angeles, Las Vegas and
Miami where price growth was most excessive, will continue
to be those cities where price declines will be the
greatest.
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