The May Story - Issue 364

It’s that time again: market stats are out!

May brought with it much warmer weather, allowing us Canadians to finally enjoy some much needed time in the sun. The sunshine & high temperatures also began drawing out both buyers & sellers with an influx of inventory into the market. The market began heating up - almost as hot as the weather outside! But with an influx of inventory came an even bigger influx of demand.

Here’s what we saw happening in the month of May.

Prices are down 1.3% in Guelph for all types of homes from 2022 which is good news - it reflects alignment with long term year-over-year growth and a pull back from the price spikes of last year.

The long-term averages during May in the city of Guelph, spanning from 2010 until currently, have shown that May marks an influx of inventory into the market. Historically on average, May has had 342 listings and 239 sales.

Over the past 14 years, 72.89% of available homes sell each May. This May, 108% of available homes sold. Any excess inventory building from previous months was absorbed.

Here’s a visual:

Think of the market as a lake - let’s say Lake Mead in Nevada. If you look up some pictures of Lake Mead, you’ll see the scarily low water levels amid the ongoing drought. When there’s a drought with long periods of no rain, the lake slowly begins to empty. No rain + lots of heat = no water in Lake Mead.

As the number of new listings continues to be below the number of sales, inventory begins to drop - sales are higher than the incoming listings. Consumption is higher than the supply can keep up with. No new listings = no new sales.

Just as the heat of the sun empties out the lake, the heat of the market is beginning to drain the inventory of houses that are available. There is not enough water (listings) flowing into the lake to replace the consumption (sales).

We have been in a seller’s market for the last 14 years. An average of 72.89% sales to listing ratio means that demand is continuing to outstrip supply & any excess inventory is being picked through. You’d have to have a pretty rough home that is overpriced in order to not sell for a decent price in this type of market.

So what are some solutions for our market to avoid becoming a lake dying of drought like Lake Mead?

Option 1: Slow sales

The recent rate increase has helped somewhat, as buyers may be more wary of getting into the market. However, sellers may just be just as cautious about entering the market as well.

Further increases are possible, but at what expense to the balance of the economy?

Sales could possibly be artificially suppressed, but that’s a massive block of voters, new buyers, & older boomer sellers that wouldn’t be all too happy with that.

Option 2: Stimulate Growth of New Construction

New condos and townhouses can be built, geared towards empty nesters & retirees. Not tiny suits geared to investors that developers are building because they’re easy to pre-sell to arrange financing, but townhomes with main floor bedrooms and decent sized condos. These new builds can be geared toward older buyers, while the older (& larger) two storey homes can instead be sold to younger families.

Option 3: Further Encourage Infill

The time required and cost incurred to severe a lot or redevelop existing properties is incredibly expensive and time consuming. This has started, but it will take some time for builders/owners to figure out a cost effective and profitable way to achieve this. Guelph doesn’t have alleyways like bigger cities do that would lend themselves to alleyway homes/accessory dwellings. Allowing added density to existing single family homes to allow things like duplexes & triplexes can also generate more living space, again geared towards empty nesters/retirees that are affordable and accessible.

Incentivizing municipalities and builders through the Canada Mortgage and Housing Corporation (CMHC) to encourage more affordable housing options is a much better bet than stimulating demand around entry level buyers & might just save our lake from draining completely.

War time homes in Guelph, such as 1.5 storey homes in the Paisley area, were designed by the CMHC who also offered financing packages in post WW2 years to meet the demand created by returning war veterans. This is something that could be done again to help stifle the increasing demand.

None of these are easy solutions - but there are really no short term solutions to a problem like this that has been gradually building. If you still don’t have enough rain, you can’t find the water needed to refill your lake.

Perhaps the rate increase may slow the demand, but we’ll have to wait and see what the market brings. At 75%, this market is still a seller’s market, so there is still opportunity there.

A market like this may be difficult to navigate - please don’t hesitate to reach out and start a conversation about what this market might mean for you.

Thanks for reading & have a great weekend,

Paul Fitzpatrick

Appointment Calendar: https://calendly.com/homegrouprealty

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