Toronto/Vancouver Comparison: Sales to New Listings Ratio

Continuing our examination of the similarities between the housing markets of Toronto and Vancouver, this post will compare their sales to new listing ratios.  Our previous post, analyzing the percentage price changes for detached houses showed a strong correlation between the two cities.  To illustrate this connection, we shifted Toronto’s timeline by nine months to mirror Vancouver’s percentage change movements and in doing so saw a near perfect match.  We will utilize the same tactic to show parallels between the sales to new listings ratio.

The chart below shows the year over year percentage change comparison in each city’s sales to new listings ratio for detached homes.  When the chart is above zero the respective city is experiencing a tightening inventory in comparison to the previous year (more sales vs. new listings).  When it is below zero, more homes are available on the market in comparison to the norm for that month (less sales vs. new listings).
Sales to NL

Source: TREB, REBGV, Better Dwelling, Six Housing Sense

This information shows that both Toronto and Vancouver saw the year over year increases to their sales to new listings ratio end shortly before their price increases did.  Meaning the falling ratios were signaling the coming end to the price gains.  In Vancouver, we see a steady run of year over year ratio increases end in April of 2016 and continue to fall through to January 2017.  At the same time, price gains benefited from the tightened supply through July of 2016 before finally coming down.  Toronto had a similar experience, though its ratio increases continued until slightly closer to city’s peak price in April 2017.  For Toronto, the ratio gains continued until January of 2017 before trending lower for a full year, causing prices to drop.

In the next chart we use the tactic we leveraged for our last article by showing the same data but shift Toronto’s timeline by nine months to match Vancouver’s.  (Vancouver’s data is from January 2015 to the present, Toronto’s is from October 2015 to the present)

StoNL Shift

Source: TREB, REBGV, Better Dwelling, Six Housing Sense

Shifting timelines once again illustrates high overlap between how the two housing markets behave.  This information, in addition to the price movements, show the clear relationship these two markets have, just nine months apart.  We see Vancouver continuing to track in advance of Toronto, giving the 416 the benefit of seeing its future coming.

From this post we seem to learn two factors that may begin to predict how Toronto’s housing market will behave in the future.  The first, as noted above, is that it appears to trail Vancouver by nine months.  If this trend continues we can simply look west to determine what Toronto’s future holds.

The second factor is interesting because it may be of value to both cities (and potentially others).  The relationships are imperfect but both cities experienced a drop below the average sales to new listings ratio before their prices reacted.  This is to say, if the ratio begins to underperform in March (for example), prices will likely follow some time in the summer.  This prediction is far from perfect, and trends need to develop for it to be of value; however, we can clearly see that each city was showing signs that prices were likely going to fall before they did.

We will continue to track each city’s sales to new listings ratio to determine whether or not we can make meaningful prices predictions off of this information moving forward.

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