The London, Ontario, real estate market has experienced a significant shift over the last two years, from the end of 2016 through to the end of 2018. In that time, we have seen the price of the average detached home rise from $315,000 to $420,000. Is this the sign of a “bubble?” Likely not, as the city of London fell behind the rest of Ontario following the 2008 mortgage and financial crisis. At the end of 2016 there was a sizable price gap between London and the Greater Toronto Area. People in the GTA began to take notice.
Three types of buyers from the Toronto area started buying in London. First were retirees looking to cash in on the peak value of their Toronto home to buy a home or condo here in London for significantly less money, often pocketing hundreds of thousands of dollars in the process. Also attractive to these buyers was that they could buy new and newer one floor detached homes and detached condos, properties that are increasingly rare in Toronto. The second type of buyer is those people whose work does not tie them to an office. They either travel a lot for work, work from home or have to attend infrequent in-office meetings, such that the cost advantage of living in London became appealing to them. Finally, investors have also been looking to buy properties for rental purposes.
The loosely named “Toronto Buyer” at one point made up 10% of the market during 2017-2018. But more interestingly, they made up almost 30% of the buyers in the over $600,000 price category. Because of the size of the London real estate market as a whole, we are not talking about a flood of buyers. It does not take a large number of people to shift the market significantly. That 30% of $600,000 plus buyers is likely about 165 buyers in 2017 and a 190 in 2018. Across the whole market, 10% of buyers amounts to 750 buyers in 2017 and 650 in 2018. These buyers were enough, though, to shift the average price 33% in just two years. Also significant is that because of the increases in prices, the number of sales in that luxury $600,000 plus category has nearly tripled in two years (See Table 1). Houses in this price category made up just 3% of the market in 2016. It is now almost 10% of the market as we start 2019.
You can see how this shift has worked itself out when you break down the market into $100,000 price bands, and see over the last four years how many properties have sold in each category. You can watch the “average” area in which most of the homes are sold shift upwards $100,000. You can see the dropping number of entry level properties. You can also see the rise in luxury home sales. (See Table 2)
This upward shift in prices has led to other shifts in the market. Because incomes are more or less where they were at the end of 2016 when the run up in prices began, the group that has perhaps been hardest hit is those buyers looking for entry level housing. It used to be that you could buy an inexpensive detached home in the low to mid $200,000’s. The larger ones often needed some work. Nicer homes in that category were often smaller or they were not in the most prized neighbourhoods. There were still attainable, though, for many first time buyers. That is increasingly no longer the case. First time buyers are more regularly looking at townhouses as the best first home option. If we look again at Table 1, you can see that the total percentage of condo sales has increased from 25% of the market in 2015-2016, rising to 30% in 2017-2018. I suspect this is a trend that will continue.
Diving deeper into the numbers, there are signs that the market correction is starting to draw to a close. The supply of homes on the market has started to increase, getting back to a more normal state. The numbers, though, verified something that I was sensing more anecdotally. Much of the increase of the housing supply is in the upper portion of the market. Even though houses priced over $600,000 do make up almost 10% of the sales, they make up about 32% of active “resale” listings (New home listings on MLS have a way of skewing the numbers slightly as often one or two listings are a stand in for all the available homes a builder might be selling. The listings often stay up and active through the sale of several properties, and may never be reported to the board as “sold”. As a result, I exclude them from the discussion. Most homeowners are interested in how the resale market affects them.). That means there is an excess of supply in the luxury home market. That bears out when you look at the number of homes in this $600,000 plus category that are sitting for 30, 60 or 90 days without selling (See Table 3)
While Table 3 shows that the supply of homes in the $600,000 plus category remains high relative to the number of buyers, the opposite is true in the condominium market, especially the townhouse market. While the number of apartment condos sold has risen, the over percentage of townhouses being sold has remained relatively constant. But, the supply of townhouse listings has greatly diminished, making this one of the hottest segment of the market at the moment. Even though over-all, nearly double the number of townhouse condos sell as compared to properties over $600,000, properties in the luxury category make up almost a third (31%) of the available resale listings. Of the available 359 resale listings (on Feb 12, 2019, the date of writing), only 7% of the available resale listings are townhouses (see Table 3). And while almost half of luxury homes are still on the market after 30 days and nearly 20% longer than 90 days, it is a rare townhouse that stays on the market for more than 30 days. Turnover is incredibly quick in the townhouse market, with most sales happening in 7-14 days. Most of that delay is to allow the property to get as wide exposure as possible so as to generate multiple offers. Prices are rising with townhouses. It does vary. But some of the nicer, older townhouse complexes, many of which saw flat prices for years, are seeing price increases of 20-30% over the last year. Increasingly, this is the entry level home of choice (or necessity).