At the same time, the supply of new home listings kept on rising—up on a year-over-year basis by 33.6 per cent in April, and then a whopping 48.9 per cent in May.
As any student of economics 101 will tell you, when the supply is rising and the demand is declining, prices are bound to fall. Indeed, the average price of homes sold in the GTA dropped for the first time this year by 6.0 per cent in May compared to April.
Analysts who track the market often assume that the main reason for the change of trend in May was the set of measures intended to cool the GTA’s “overheated” housing market as announced by the Ontario government in April. However, a closer look at the TREB statistics suggests that the cooling-off trend started earlier. This is well illustrated by an under-recognized indicator which nevertheless is traditionally a good predictor of future sales and prices: the ratio of sales-to-new listings, i.e. the ratio of demand and supply for homes.
If the ratio—expressed as a per cent—is, say, 40 per cent, it simply means that in a given month there are 40 sales for every 100 new listings. Traditionally, a ratio in the 40 to 60 per cent range is considered a sign of a “balanced” market, while a ratio above 60 percent indicates a “sellers’” market. This ratio reached a record high of 81.5 per cent in the GTA in February 2017, a figure well above the balanced market threshold, and one that gave sellers a clear and strong advantage over buyers in the sale-negotiation process.
