Updated: Sep 11
A couple weeks ago, in this video, I told you that we saw an obvious increase in activities in our resale department and it could be an early sign that the market is coming back.
So I have been waiting for the official market watch report to see if the numbers go in line with our observations.
In August, prices stabilized and stopped dropping further.
What's more interesting to look at is the sales volume.
To put things into perspective, let’s take a look at the sales volume over the past 4 years.
Spring typically sees a hot market and that’s pretty much the case for the past 4 years.
Then things usually start to slow a little bit in April.
There was a dramatic drop in April 2020, of course, due to Covid.
The drop in April this year was also quite significant because of the new government policies and expected upcoming rate hikes.
The summer months are typically slow because the kids are out of school, the weather is nice, people are too busy going out to do things.
Sales volume typically drops around 8 to 10% from July to August.
But did you notice something different this year?
The sales volume actually increased from July to August and it was a big 15% increase.
I think it’s quite obvious that people are coming out to take advantage of the quieter market and lower prices.
Let’s take a look at the market absorption rate.
It is calculated by 2 numbers.
The number of Active Listings, meaning the number of unsold units at the end of the month, and divide that by the number of sales in the month, then we get the market absorption rate.
When the absorption rate is bigger than 1, that means there’s enough supply to satisfy demand.
The bigger the number, the more supply is available.
If the absorption rate drops below 1, that means supply is not enough to satisfy all the demand.
2019, the absorption rate hovered around 2, so there was plenty of supply.
2020, supply started to get a little tight after the initial Covid months.
2021, the absorption rate went below 1, supply was not enough to catch up with demand. That’s exactly why prices went crazy last year.
2022, you can see a market downturn because supply kept increasing.
But the market just reversed and turned the other way in August.
There was an obvious increase in demand.
Of course, we need to observe for a few more months to really confirm the trend.
But I do think we are seeing some early signs that the market is coming back again.
Well, we are not done with the rate hikes yet.
True, I think we are nearing the end of it though.
In fact, CIBC predicts that the September rate hike would be the last of the cycle.
Here’s the thing.
If you look around, you will notice that prices of things are starting to come down.
Gas prices were over $2 a couple months ago, now they are coming back down to $1.50.
Do you know what we can look at as an early indicator of inflation?
The second hand market of luxury goods.
For example, Rolex watches and sports cars.
At the beginning of the pandemic, prices of these luxury things went way up because people were bored and had extra money on hand.
That was before all the media started talking about inflation as a concern.
For the past 6 months, Rolex prices have dropped more than 20%.
So I think we can expect to see the inflation number starting to come back down.
On the other hand, the side effects of the rate hikes are starting to kick in.
Statistics Canada reported that over 30,000 jobs were shedded over the past couple months.
Indeed, we had a job posting up last week to hire an agent assistant and we received over 200 applications within just 5 days.
Of course, the Bank of Canada wouldn’t want to overdo the rate hikes and harm our economy.
So if inflation starts to come down, the Bank would likely put a pause on the rate hikes and observe first.
And if the rates start to stabilize, home buyers would probably get off the sidelines and move back into the market again.
The next few months will be very interesting.
And I will be here to give you all kinds of updates along the way, so to make sure you stay on top of the market, subscribe and hit the notification bell now.