November 2022 Peterborough Real Estate Market Update

Introduction

‍

Average prices in Peterborough slide lower again from October to March, BUT Months of Inventory finally reverses.

‍

Sales activity in October shows more hope for a resilient market than September numbers, but large systemic financial risks still loom. Let’s dive into the stats and the story below!

‍

All statistics presented are for the City of Peterborough, and are not indicative of County activity unless otherwise stated.

‍

‍

Sales Volume

‍

‍

October 2022 - 111 Sales

September 2022 - 81 Sales

October 2021 - 82 Sales

‍

The Story

‍

Looking back across 10 years of sales data is not totally unusual to see October sales outpace September, but it’s rare to see October so much stronger, and the sales data between the two months is usually much closer. This of course leads us to ask, what is the reason for the strong sales month in October and will this trend sustain into November?

‍

Many have been speculating that the expiring rate holds may have prompted buyers who were definitely in need of shelter over the next six months to hurry up and buy as rates continue to rise.

‍

Others are speculating that mixed messaging from central banks and continually aggressive immigration projections are leading some to think that buying now is as close to the bottom as they feel the need to time it, in fear of missing these easy negotiating times and getting caught in more competition in the near future.

‍

While total sales numbers were up sharply from the same month last year when the market was raging, this can be attributed mostly to tight inventory last year restricting the total amount of transactions possible.

‍

Active Listings

‍

‍

October 2022 - 180 Active Listings

September 2022 - 183 Active Listings

October 2021 - 61 Active Listings

‍

The Story

‍

Active listings have continued to shrink since their pivot point between the months of July and August this year.

‍

Although this contraction in inventory has been modest, it has now asserted itself as a definite trend after three consecutive months of seeing the total active listings decline.

‍

This of course leads us to wonder if inventory will continue to decline in the coming months and potentially return us to a scarcity mentality over the winter.

‍

Active listings divided by sales = Months of Inventory… aka absorption rates or the speedometer of the market!

‍

Months of Inventory

‍

‍

October 2022 - 1.6 Months of Inventory

September 2022 - 2.3 Months of Inventory

October 2021 - 0.6 Months of Inventory

‍

The Story

‍

Of all the statistics this month, this one is the most surprising and the most interesting.

‍

Months of inventory has now been in decline for three straight months and is now similar to those in May just shortly after the peak sales prices in March.

‍

Months of inventory tells us how long it would take for our current inventory to disappear if no new listings came on and sales continued at the current pace.

‍

Think of this as being similar to how long it would take for you to go bankrupt if you had no paychecks coming in. Three months as an unemployed person is tolerable, but 1.6 months is certainly getting nerve-racking.

‍

I must say, I personally did not expect to see months of inventory levels get this low at this point in the game, but it absolutely drives us towards having to review the case for potential market rebound and prices starting to rise again in the near future after seven consecutive months of losses.

‍

I have cited commonly in my past market updates and commentary on the months of inventory metric that it’s my belief that the common wisdom about months of inventory in relation to buyers and sellers markets is wrong. It’s commonly cited that a month’s inventory between 4 to 6 months represents a balanced market, that less than this is a sellers market, and that more is a buyers market.

‍

Crumbling prices over the last six months all while months of inventory never reached above three months in our city are strong proof that this classic market wisdom is flawed.

‍

It is my belief that we should be paying more attention to the rate of change in the months of inventory, a.k.a. how quickly months of inventory is rising or falling as the true indicator of market health, scarcity, and direction of sentiment.

‍

With all that being said, September to October 2022 showed a sharp decrease in months of inventory, and if my gut instinct and theory on this topic of discussion is correct - there is a high likelihood we could see the first month-over-month price increases in seven months with the reveal of November's 2022 statistics.

‍

Average Sales Prices

‍

‍

October 2022 - $621,224 Average Sale Price

September 2022 - $630,224 Average Sale Price

October 2021 - $656,584 Average Sale Price

‍

The Story

‍

Prices continuing to slowly slide lower over the next six months is a theory and prediction many market pundits currently hold, and this month’s price data ties into that theory perfectly. For three consecutive months, we have seen prices drop between 1% to 3% a month, which does not seem like large figures but adds up to huge quarterly and annual losses when they are consistent.

‍

We are not seeing new inventory come on quickly enough to keep up with sales activity, and there is some resistance so to speak. That is to say, we are not seeing and are not expecting to see the massive month-over-month price hemorrhages we did in the spring and early summer - but just like water cut stone, the consistency of the small monthly losses are adding up.

‍

BUT…

‍

As I mentioned previously in this post, the months of inventory trend we observe in this month’s dataset would actually lead us to believe that small month-over-month price gains could quite possibly be right around the corner.

‍

Macro Economic / Socio-Economic Narrative… The Forces Below the Surface and Stories to Watch

‍

Rates (Lending Policies, Liquidity, and Ease of Access to Money)

‍

‍

While nearly the rest of the world’s central banking systems have started to ease up on their interest rate signalling in the past month (including Canada), the United States Federal Reserve is the one exception to the rule, and arguably the one that matters most.

‍

Federal Reserve Chairman Jerome Powell has been very direct in his statements that until there is a clear sign that inflation is reversing, rate hikes will continue. While there is social pressure on the Bank of Canada to be mindful of the already crippling effects of recent interest rate hikes, to some degree the BOC’s next actions will be dictated by following the leader in the United States.

‍

While it is clear that the general population is waiting to respond with jubilee and optimism the moment that the Bank of Canada reverses course on its interest rate policies, the discussion about the chance that they might have to continue to raise aggressively gets relatively little airtime considering the massive consequences it could have.

‍

All this is to say, it seems like common kitchen talk to state that it is a matter of fact that interest rates will be going backwards by early 2023… but very few are taking time to seriously consider what things look like if they don’t.

‍

For all of the optimism in this month's statistics, we must interpret them with extreme caution as in some ways we are but a small ship out in the middle of a large and unpredictable sea.

‍

Employment Wages

‍

There is currently no meaningful wage growth to support the notion that Canadians will be able to sustain the last two years’ prices if interest rates do not return to something that resembles the recent lows. There is also a looming risk of a sharp recession leading to job losses and pay cuts, painting a rather bearish picture for wages over the next year.

‍

Socio-Economic Dynamics

‍

The reversal of the pandemic trends that helped small and midsized cities like Peterborough boom through the pandemic are still mostly in a state of reversal. That is to say, GTA residents are looking to Peterborough less frequently now as it has become clear that their work schedules will not be as accommodating towards working at home.

‍

Sentiment

‍

‍

If I were to sum sentiment up in one word this would be it… Confusion.

‍

As any good salesperson knows, whenever there is confusion there is no action.

‍

Canadian consumers and would-be home buyers are confused and scour through information restlessly to try to come to their own conclusions about how to play their chips in this ongoing economic poker game we live in.

‍

Many seem to be taking refuge in the notion that interest rates will drop in 2023. We should be keeping a close eye on how sentiment follows if this does not happen, as so much hope is currently relying on this outcome.

‍

Supply and Housing Starts (New Builds)

‍

‍

While much of our discussion centred around what will happen in the next 3 to 6 months, there are some interesting storylines about what will be happening in one to three years.

‍

Home builders and developers everywhere are feeling the squeeze of inflationary pressures on their supply chains while simultaneously seeing declining prices in their sales offices.

‍

Speculative building of new project starts are quickly being shelved as capital flows are tightening up and everyone is becoming more apprehensive about being exposed to long-dated real estate projects.

‍

We are likely going to enter into a situation where record immigration numbers are met not by record new housing starts and completions over the next few years - but rather by numbers that are dramatically below what is needed, as we reap the crops of this year’s fear, uncertainty, prices, and recessionary forces.

‍

Population Growth and Decline (Immigration, Provincial Outflows, Mortality Rate)

‍

‍

The federal government has recently made an announcement that they will target new heights again next year in regard to immigration. Comments have been made that this announcement has been stated not so much in an effort to fill labour gaps to support an aging population, but literally just to provide a sentiment boost to the housing market in its time of vulnerability.

‍

Whether this is true or not I will never know - but I will say that the prospect of welcoming another half a million new residents next year certainly has a lot of people wondering at what point this variable outweighs all other variables by sheer force as the scramble for shelter gets fiercer amongst real scarcity.

‍

Cost of Living and Inflation - How Much Disposable Income Does One Really Have?

‍

Finally, we must ask - aside from interest rates and wages, how much money do people truly have left to spend on housing every month with the way that food and gas prices have gone? Without a doubt, the price to fill the gas tank has entered the discussion for any would-be commuter from Peterborough to a Durham or GTA-based job.

‍

Conclusion

‍

While October seems like the most optimistic month of data since our great decline began in April of this year, we must stay fully alert and wait for more supporting data before we get too excited.

‍

Many looming factors are bubbling below the surface which are creating the possibility of a black swan event.

‍

By this, I mean while it may not be highly likely, the potential for our entire financial system to come totally unwound is still a possibility.

‍

As professionals, we have witnessed first-hand many individuals who are currently nearly in distress positions, and are not poised to do well with any kind of continued cost of living pressure.

‍

We have also been exposed first-hand to many individuals who are flat-out overleveraged, and are engaged in future commitments including those in the preconstruction world which they will have a hard time fulfilling, and may have to take ownership at a loss.

‍

All of these individuals could be bailed out and their financial woes erased if property values began to rebound.

‍

Perhaps our massive population growth will start to grab hold and begin to tip the scales on buyer sentiment, but if it doesn’t and prices continue to move sideways or downwards, and interest rates continue to climb, there is a chance that the worst is yet to come.

‍

At the end of the day, there are extremely smart individuals that are on different sides of just about every part of this argument, and sometimes it feels as though a coin toss is a better way of making decisions than by trying to sift through all the information out there.

‍

If there’s one thing I can say, is that every individual is different and factors like their total disposable cash, preference between risk mitigation versus the desire for upside gains, and factors regarding changes in your household all play into when the right time to make a move is for you.

‍

GET SPECIFIC ADVICE

‍

If you plan to buy or sell within the next 6 months, reach out to book a consultation. It’s free, and the right timing and strategy in this market could save you tens of thousands.

‍

You can receive my Peterborough market updates directly to your inbox by signing up with the form to your left.

‍

Thanks for your support,  

‍

Mitch

‍