Ok, so here we are in the heat of summer when real estate sales are traditionally their slowest and the media is making dire predictions on where the market is headed. Here's my two cents from the real estate trenches!
First, Toronto Life Magazine did a good job wigging us out with their July article called 'Bubble Trouble'. Click here to get the wiggity scoop. TL's sensationalism about Toronto's real estate market is nothing new. I've enjoyed reading stories like these for the past twenty-five years, ever since I moved to Hogtown to attend university (here's a January blog about my arrival to TO in 1984). Plain and simple, we are a collection of urban denizens who love a good bit of real estate drama to prattle on about while savouring molten chocolate cake and decaffinated lattes at Giancarlos (well, I do!). TL, which has been publishing since 1966, can't help but focus on all the Big City excitement that accompanies an affluent urban lifestyle. It's what their readership wants. Real estate tales of woe and wonder are simply part of that.
Then, as August rolled in the July statistics rolled out, painting what was once a blazing hot Canadian real estate market as one which is positively tepid. Vancouver and Calgary, who peaked in value faster and higher than the Toronto Market, are now feeling the pinch according to Report On Business Magazine (click here). And the Financial Post pulled heartstrings whilst proclaiming the end of our country's "Bull Run" on real estate. Read that article here along with Mortgage Edge Broker Jake Abramowicz's comment here. It appears that if you live out west now is not the time to sell!
Now I'm not going to deny the volume of sales and prices, specific to location, price point and product, will adjust. This is what inevitably happens after a sustained period with record-breaking sales and values (which are nicely summarized in this July Globe and Mail article). Basically when bidding wars stop, as they did for the most part this summer, then so do the precedent setting prices that push market values higher and higher. Without multiple buyers going into competition, properties go from selling over list price to selling at, or under, the asking price. The moment housing supply and demand begin to balance it invites negotiation between the buyer and seller until there is a meeting of the minds. This change in the market dynamic automatically creates a perception that prices are dropping, but it may not necessarily be the case. In fact, the clever realtors are listing properties a little higher (but not too high) to leave some room for negotiation so the buyers ultimately feel like they're getting good value!
When bidding wars stop it only indicates property values are no longer spiking. It does not portend a crash. It simply indicates that there is stabilization occurring where a market is active, but not as active as before. However, it's important to understand that even as a market is stabilizing it will still statistcally show up in the coming months as a dip in sales volume and prices when compared to earlier boom market data, which is why it's easy for the media to call it doom and gloom.
Whilst other parts of the country may be heading into a decline in volume and values, I genuinely believe the City of Toronto has the momentum and resilience to be balanced and stable. Most certainly for the City's freehold housing market, along with portions of the condominium market (mainly the stylish, fresh, innovative product - not the cookie cutter ubiquitous box in the sky). My caveat and concern lays with the new financing rules introduced in February which now require a minimum 20 percent down for non-owner-occupied purchases. This could potentially sink portions of the condominium market - mainly all those chock-a-block bland high-rises under construction and nearing completion - which were already pre-sold predominantly to investors. As those buildings are completed alot of units similar to each other could flood the market for sale resulting in an over-supply - with too few investors having the substantial down payment required of them - and too few first time buyers entering the market willing to absorb the supply. For those making a condominium purchase, make sure you are being discerning in your purchasing decision! And if you haven't enlisted the services of a realtor, consider speaking with me about this ok?
As for the decrease in sales volume I did find, during the months of May and June as the HST deadline loomed and the bidding wars raged on, that my buyers who did not secure a property ultimately threw up their arms in frustration and screamed "No More!". After suffering through an intense Spring boom, I think substantial numbers of buyers took the summer off real estate shopping in an effort to nurse their fatigue and regroup - especially as it coincided with the media touting a possible market correction. However, the withdrawal of these buyers from the market doesn't signal they're out of the market for good. In fact, it's just the opposite. Alot of my buyers are diligently keeping a watchful eye for the perfect property and are, effectively, ready to pounce.
So how will the Fall Market fare?
I think one aspect the media isn't duly recognizing is how much Canadians like their summer leisure. We urbanites are a committed diligent workforce through the winter months when city living has the propensity to be icy cold, exceptionally bleak, frightfully miserable and ominously dark. By the time summer rolls around we are positively giddy to play while the sun shines well into the evening and the weather remains warm night and day! We have less desire to work, and even less interest in real estate.... unless we have unsuitable accommodations or no where to live. I outlined this in a June blog.
Our northern climes has traditionally had enormous bearing on our real estate temperment. Certainly last year was an anomoly (basically the Spring market started late and cycled through the Summer), but traditionally the summer housing market is slower and inherently keeps the real estate market in check as a counterbalance to the usual intensity of our Fall and Spring markets. This has traditionally been part of the dynamic of our property economy, so I expect this Fall will see some regained momentum.
In a nutshell, call my Fall Forecast for the City of Toronto as pleasantly paced, moderately temperate with only a slight cooling off for specific product and location.
By the way, did you read my most recent newsletter, Understanding Our Market Momentum - Five Factors Influencing The Property Economy? There I outline my top five factors influencing a stable property economy in the City of Toronto. Check out my HomeWatch Newsletter page to download it and others, and consider registering on-line at the bottom left side of this page to receive future issues!
* This Stunning Magazine Cover is from Vogue Italia