Driven by Toronto residents fleeing the big city, Prince Edward County existing home sales exploded in July to almost double the number sold in July 2019. Although sales have more than recovered from depressed levels brought on by the pandemic, listings have not, with the number of existing homes available for sale significantly below July last year. Not surprisingly, prices have increased rapidly because demand outstrips supply of re-sale homes.
July existing homes sales grew by 2/3rds compared with June, increasing to a level that is nearly double the sales in July 2019.
There are two apparent drivers for this staggering increase in demand, both resulting from the pandemic.
The first is demand for second homes and retreats. This is partly pent-up demand, made up of people who were planning to buy this spring, but who had to postpone their purchases with the state of emergency. In addition, the pandemic has created a whole new pool of buyers for a rural getaway property: stir-crazy after 4 months of confinement, blocked off from international travel and worried about a second wave. This demand could potentially dry up if Canada enters a deep recession.
The second source of demand represents a more fundamental and sustained shift in the demographics of buyers coming from Toronto.
Especially for professionals and other knowledge workers, Covid-19 showed employers that costs are lower, and productivity is often higher when staff work from home. Likewise, many customers no longer automatically expect in-person service.
With this kind of fundamental shift in employer and customer expectations, many knowledge workers can have successful careers with big-city clients even while living in the County.
Until recently, many two-career families were stuck in Toronto because even if one spouse was able to work remotely, the other was still tied to their office. In the last two months it is increasing common that both partners in a two-career family can permanently work remotely, making it possible to relocate.
This second source of demand – two-career families able to work remotely- is likely to be ongoing and much less affected by the state of the economy.
Although demand for re-sale homes has grown spectacularly over the last two months, the same is not true for listings. Listings for existing homes have not fully recovered from the pandemic-induced low levels of April and May. Although July sales were almost double last year, active listings were 10% below last year.
With existing home sales up dramatically in July and soft listings, the inventory of homes available for sale fell. At the rate of sales experienced in July, all the available listings would be consumed within 3.2 months, the lowest level of inventory ever in the County market. As you would expect, large inventories work in favour of the buyer while small inventories favour the seller.
Selling to Listing Price Ratio
The selling to listing price ratio offers another measure of the demand/supply balance. Starting from a low ebb in April, the ratio has increased ever since with re-sale homes going for 99% of listing price in July (compared to 97% last year).
Time to Sell
With extraordinarily strong demand and weak supply, homes would be expected to sell more quickly. This was evident to some degree, with existing homes requiring an average of 51 days to sell during July compared to 57 days last year. If history is any guide, homes could be selling even more quickly soon – during the 2016-17 bubble, time on market fell to as low as 32 days.
Finally, the average price paid for a re-sale home rose to $628,000 by July, an increase of 25% from a year earlier. However, July prices were inflated by an unusual increase in the number of homes sold in the range, $1.25 to $1.5 million, dragging the average price up. Once this outlier is removed, the year-on-year increase in average price was closer to 17%.
Existing home sales exploded in July, which sounds like very positive news.
However, there is an extremely high level of short-term uncertainty in the County real estate market. With Covid-19 under control and a quick economic recovery, sales will likely continue to climb, while a setback with the pandemic and/or an extended deep recession could result in a market downturn.
Over the long run, the growing acceptance of working remotely will create a whole new segment of demand for County real estate by working-age buyers, replacing the decline in demand as we pass the peak of retiring baby boomers.