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2011: The Year in Review

Posted January 18th, 2012 under market updates.

2011 was supposed to be a year of moderation and slow growth, with a slight softening of prices.

Instead, it turned out to be another year of solid price increases! There were several reasons for this.

The total number of sales for 2011 was, in fact, lower than 2010. However, because of an ongoing shortage of listings, the sales-to-listings ratio for the year was abnormally high at 60%, which implies a strong seller's market (compared to a balanced market at around 50%).

Early in 2011, the shortage of listings, combined with a fluctuation in interest rates, made buyers nervous about being caught by rising rates. This led to many buyers jumping into the market when they might otherwise have been more patient, which caused prices to rise rapidly in the first half of 2011.

By July, this trend had run out of steam, and for the remainder of the year price increases were more modest at about 1% across the board. (See my 2011 Price Statistics article for detailed information on different types of home.)

In addition to the above factors, there were also an unprecedented number of 'flips' being sold. (A flip is a home purchased and renovated for profit, rather than for living in.) This trend was visible for all types of homes, from apartments to detached houses.

Flips, by their very nature, push up prices at an accelerated pace, inevitably causing them to balloon. This is because the profit margins that investors expect to make do not represent real value and are often over-ambitious. The more prices increase, the more ambitious some flip investors become, which can lead to prices ballooning.

Finally, the trend toward ‘lifestyle’ apartment living continued through 2011. However, prices have now reached a level where buyers are having second thoughts. This is mostly hurting newer developments, because prices per square foot are higher in newer developments compared to older, established buildings.

Typically, an older building will range from $125 to $225 per square foot, while a newer ‘lifestyle’ building will come in around $300 per square foot, or even higher.

A price adjustment for apartment properties seems inevitable.

Whether there will be an adjustment for the remainder of the market will depend on at least three factors: whether interest rates stay low, whether buyers remain patient or become anxious, and whether the trend of flipping remains as prevalent as it was in 2011, or begins to fade.

Want to know more about the state of the market? Just ask me, I'll be happy to help.

--Peter

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