A CTV News piece about the Ottawa real estate market came to my attention this week. A local Realtor provided data and insights into prevailing conditions that continue to favour sellers.
Here’s a link to the piece:
Reading through the article I could not help but cringe at the glib characterizations portrayed as substantiated, when they are not. For example, that home prices in Dunrobin are skyrocketing because people who are now permitted to work remotely are moving there from the City.
Has this Realtor interviewed all the people who’ve recently purchased homes in Dunrobin to ascertain the reason they chose this neighbourhood? What about the people who Sold in Dunrobin? (You know, the homes that people bought also had people on the other side of the transaction – thank you to my daughter for adding this observation.) Did those sellers move even further away from work? Or did they move back into the City?
Is there a qualitative market research paper recently published showing the underlying motivations of buyers and sellers in Dunrobin and Greely? Did Statistics Canada provide a new quantitative analysis of population or specific demographic migration from urban to suburban or rural communities in the most recent months of 2020?
How about 2020 year-to-date?
I love working in real estate, and I respect those who bring service and integrity to bear on a subject that interests and impacts us all. But I continue to experience frustration and embarrassment due to the cavalier approach of some real estate agents who are either motivated by self-promotion, or a “whatever hype it takes to increase sales” mentality.
Oh, and it turns out there is at least one market research paper on the topic of population migration due to the recent increase in remote working. It is an American study performed or commissioned by Zillow, so it may or may not reflect trends in Ottawa, Canada – but at least it is research and based on large data sets: Zillow Study.
Why do agents feel the need to put a gleefully upbeat spin on market conditions, regardless of the facts? Our role advising clients and project managing their purchases and sales offers enormous opportunity for work regardless of market conditions. We don’t “do better” when conditions strongly favour sellers, or buyers. It’s just different. Right now it is painful for buyers – when the tables turn, as they inevitably do, it can be painful for sellers.
Balanced markets never last. I will venture to say that the “best” market is one that marginally favours sellers. But there is no reason to avoid “bad” news or hype “good” news. Market data speak for themselves, and the most useful thing real estate agents can do is provide this data, with objective analysis, to inform buyers and sellers to help them avoid frustration or futility when they are trying to buy or sell properties. I know, it’s pesky having to do research and actual work rather than drum up sales with fluffy, salesy talk. But times are changing – consumers are smart and they expect more. As real estate agents, we have the opportunity to forge an entirely new image built on quality advisory and representation services. And many are taking up the challenge.
You might be thinking that I am picking at nits in my frustration with the analysis and representations made in the CTV piece. Well my friends, I want to break it down for you. I assure you, I would not write this take-down over marginal errors or minor misrepresentations. Let’s walk through the article, look at the relevant underlying data, and analyse the premises and conclusions that are shared in this piece. That’s right, let’s apply some critical thinking.
Double Digit Growth?
Ottawa’s July real estate market was as hot as the temperatures.
Despite these uncertain times, the market experienced double-digit growth.
Taylor Bennett of Bennett Property Shop Realty says a normal July would mean a slight dip in the number of sales, and the average sale price of properties.
“As we all know, 2020 hasn’t been your normal year, and unsurprisingly the historical trend was broken,” he says.
There’s no doubt the market was extremely busy in July. If by “hot” they mean there were more sales than usual for the month of July, they are correct. It would be hard to get this one wrong, as the Ottawa Real Estate Board’s monthly news release features the overall number of sales and average prices in both the residential and condominium categories. These high level figures are echoed on about 700 local real estate agent websites. So, it’s accurate, but not exactly news. Here’s the snapshot of sales for the month, and how the number of sales compared to July 2019:
|Home Sales||July 2020||July 2019||Change|
|Condo Sales||July 2020||July 2019||Change|
It’s also true that the number of sales in July is generally somewhat fewer than the number of sales in June. Monthly property sales in Ottawa usually peak in May. The graph below shows sales by month for the past few years.
With the onset of COVID and the related shutdown of business activity in Ontario, monthly sales this year compared to 2019 have been as follows:
April – down 55%
May – down 45%
June – freehold properties up 1.9%, condos down 12%
Many people in Ottawa put their real estate plans on hold for a couple of months. And now things are catching up. The article does contain an un-quantified reference to this context; I think showing the numbers that led us to this busy month is crucial, but they don’t provide this information.
The above graph shows what’s going on. Year-to-date sales fell off the track in April and with increased sales in June and an extremely busy July are headed back toward normal. By the end of the year, will sales have fully recovered, or will the total be a little less this year than it would have been without the pandemic? We shall see. I try to avoid making predictions. The graph shows the trend, and it is headed in the right direction. But “double digit growth in July” is fundamentally not the story. It is common lazy or misleading real estate agent-speak.
The story is: sales plummeted with COVID, and are now recovering; activity in July was up 19% over July 2019 likely reflecting delayed purchases, but sales remain well below normal year-to-date.
Historically Low Inventory
Bennett explains that even though the market prices continued to climb during lock-down, inventory levels were at an all-time low.
“Buyers had fewer options to consider during a time of the year when we normally see the highest levels of inventory. But now that we are entering our 4th week of Phase 3, we are seeing activity we normally see in the spring.”
I’m still trying to decipher the first sentence in this section of the article. Paraphrasing: …even though prices are climbing, the number of homes for sale is at an all-time low…
Anyone who took Economics 101 understands the forces of supply and demand. While there are undoubtedly other reasons prices continue to rise in Ottawa, it is clear from data representing 17,000 transactions a year that low supply and high demand combined are the primary reason. In other words, the above quote expresses the observation in reverse. “Even though prices continue to rise….” All-time low inventory (supply) is a reason prices continue to rise. Inventory is not somehow low despite prices rising. My guess is, this is just sloppy writing, and not a conscious attempt to draw an inverse conclusion. But this emphasizes my premise about the media and many in this industry: they often take the lazy route to a hyped up optimistic market narrative, treating sales of your most valuable asset like a popcorn stand at a carnival.
The second sentence in the above section speaks to two factors: inventory (supply) is usually at its highest point in July, and this year in July we saw activity (not sure if this is referring to supply (listings) or demand (correlated to sales)) typical of Spring months. The second part is true and is simply a repeat of the first point of the article: sales were way up in July, as the market starts to catch up from historically low sales in April and May.
But the statement referencing Buyers having fewer options is made to sound like supply was suddenly much lower than usual in July. The reality is, inventory has been dropping steadily and dramatically in relative and absolute terms for over three years and there was no meaningful change in this trend in July. Inventory has been falling primarily because of dramatically decreasing new listings, and secondarily because of gradually increasing sales. Here are the graphs:
There is no question that half of the story of Ottawa’s real estate market since 2017 is decreasing new listings. Yes, demand is up and that is absolutely the other half of the story. But in a growing City with a real estate market that is increasing in volume, you might expect listings and sales both to be on the rise. A journalist with an eye for facts and a story might ask a real estate agent in an interview, why they believe new listings have been on the decline. And better yet – what facts and data they have to support any hypothesis.
Is it possible the mortgage stress test, intended to slow the market and improve affordability, has had the opposite effect? People who would otherwise sell their current home and move up are electing to stay put because they can not qualify for their next, more expensive home? This leading to fewer homes on the market in the lower price ranges, creating an imbalance between supply and demand and thereby driving prices up through competition? I will not state that I have any hard data to support this theory – but I bet if they had come up with this theory, they’d be more than willing to state it as fact.
The Hottest Neighbourhoods
As for the hottest neighbourhoods: Hintonburg, Dunrobin, Vanier and Greely are up by more than 45 per cent over last year.
Manotick and Overbrook are tied for fifth place, up by more than 37 per cent.
“Hintonburg and Manotick have appeared on this list before. But both Dunrobin and Greely likely make this list due to the new societal working habits – the need to be close to your office may not exist as more people are telecommuting and both of these neighbourhoods offer more home for your dollar,” he said.
This is the most inexcusable part of the piece. The lack of diligence or blatant desire to create a story in this section is beyond frustrating and embarrassing. Naturally, the journalists headlined the story with this part of the interview. It is so compelling – wow, Dunrobin and Greely are the hottest neighbourhoods now? And it’s because of population migration due to remote working already? Stunning!
Except of course, the Realtor has done zero research to back up the population migration claim. And worse, the numbers used to suggest that these two neighbourhoods are the hottest in the region are simply incorrect – to the point of being ridiculous. Let’s look at the data.
“Dunrobin”, the article states, is one of the five hottest neighbourhoods. First off, there are two MLS Area Codes for the “Dunrobin” community. There is 9303 – Dunrobin, and 9304 – Dunrobin Shores. Any report suggesting that “Dunrobin” is one of the “hottest” neighbourhoods in Ottawa and that people are packing up and moving there because they are now allowed to work remotely, should at least be specific about which of these two neighbourhoods is the hot one. Or whether it is both combined.
In this case, the data reveals what must have triggered the report. There were ZERO sales in Dunrobin in July 2020 and in July 2019. There were a mere 8 sales in Dunrobin Shores in July 2020 and 5 sales in July 2019.
For completeness, there were three (3) conditional sales in Dunrobin in July this year, which may show up as firm sales (all the sales statistics on record refer to firm sales) in August.
Yes, the average selling price of the 8 homes in Dunrobin Shores was 47.1% higher than the average selling price of the 5 homes that sold last July. But does that really sound to you like data worthy of the conclusions made in the CTV piece? When you read the piece – when you read that Dunrobin and Greely were new entrants to the “hottest” neighbourhoods list, did you think that 8 houses sold in Dunrobin?
Let’s say you feel there is nothing wrong with this report; that the data support the representation you garnered from it. Very well – prices are up in July in Dunrobin Shores. In that case, what do you make of the year-to-date context? The table below shows sales year-to-date through July in Dunrobin and Dunrobin Shores. Prices are down 11.2% in the Shores, which was the neighbourhood upon which the “hottest” claim was made. If you were buying or selling, would you now rely on that “hottest” status from the month of July?
The situation in Greely, the other “surprisingly hot” neighbourhood, is similar though not quite as dramatically misleading. There were 15 sales in July vs. 12 in July 2019. This provides a more meaningful sample, but it is still just one month of sales. The sale of one or two exceptional properties one year or fixer-uppers the other year can carry too much weight and generate an unreliable result.
The year-to-date figures provide a larger sample size (interestingly, the same number of sales both years) and show that prices in Greely on average have increased almost exactly in line with the overall Ottawa market – 18.7% vs 19.7% for the whole market.
The crime in the Manotick reporting is particularly egregious. Manotick comprises 3 distinct MLS District Codes representing 3 unique neighbourhoods. It is apparent the Manotick Islands community is the basis of the CTV article’s “hottest” claim, and we know they are only looking at sales in the month of July. Well, there were 2 sales vs. 1 in 2019. And they are seriously making a major market performance claim based on comparing a total of 3 sales?
|8002||Manotick Village & Estates||4||4||0%||$1,249,525||$1,035,025||20.7%|
Give ’em What They Came For
In the spirit of giving the crowd what they came for, here are the hottest Ottawa neighbourhoods so far this year, for real. If you’ve read this far you must realise that I find such reports to be meaningless if they are not qualified – if you’re going to list the “hottest” neighbourhoods, you need to start by explaining what you mean by “hot”. What are you measuring? Are there any assumptions? What is your methodology?
It’s not good enough to look at the final column in a table that you don’t take the time to read or understand and make bold pronouncements that people might rely on to decide when to buy or sell a major asset. You can end up claiming a neighbourhood to be one of the hottest in town when there have literally been NO sales there!
My assumptions and methodology:
- establishing what neighbourhoods are seeing the strongest increase in average prices is based on year-to-date sales; there are too many factors that can skew the data for a single month, and the sample sizes are too small to be meaningful
- looking at year-to-date sales, ignore neighbourhoods with too few sales to be statistically meaningful. In the February edition of my newsletter each year I report on the top 20 and bottom 20 neighbourhoods for price appreciation and number of sales for the entire previous year. I look at neighbourhoods with a minimum of 20 sales in each of the years being compared. Even that is a small sample set, but you have to draw the line somewhere.
- in considering sales year-to-date through July, I’m including Ottawa neighbourhoods with 15 or more sales each year. In the Eastern Ontario category, I’m going with a minimum of 10 sales in 2020 with no requirement for 2019 because many of these communities are small.
- we’re ranking percentage increase in average sale price of all properties (freehold and condominium residential) in the neighbourhood
Ottawa’s “Hottest” Neighbourhoods Through July 2020
The CTV report based on the one real estate agent they interviewed got a lucky hit with “Manotick” as it is the only neighbourhood they listed that is on the “real” list. And of course, it’s one of three Manotick communities: the Islands (which are, by the way, Long Island and Nicholls Island).
Eastern Ontario’s “Hottest” Communities Through July 2020
You can see that I am annoyed by real estate agents being cavalier with their responsibility to inform the public about the market. I should say that I am equally frustrated with the media for reports like the one I’m reviewing in this article. Of course, journalists don’t have direct access to the data – they rely on industry sources. But seriously – is it not widely known that the integrity, analytical skill, and work ethic of real estate agents varies as widely as Ottawa’s average daily temperature throughout the year?
If you are a journalist reporting on the Ottawa real estate market, vet your sources until you find an agent who knows how to use Excel, takes a professional, objective stance, and expresses market trends with care out of a sense of responsibility, rather than spewing loosely developed opinions to appear informed to attract sales. At a minimum, interview a handful of agents and compare their reports to ensure some level of consistency and completeness before writing what turns out to be misleading fiction.
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