With the introduction of the Ontario Government’s Fair Housing Plan last month, there has already been a decided shift in market sentiment. This shift is having a material impact on the market, with TREB’s recent data showing a modest pullback in April. (Here's a helpful read: “Torrid Toronto Housing Market Finally Takes A Breather”.) Prices still soared 31 percent, which is substantial, but the volume of property trading dropped.
While it’s too soon to tell if this mild cooling in the market is the result of the Government’s measures or if it's the product of an increase of supply (probably both), it's interesting to note that the Toronto Real Estate Board’s market analysis indicates the role of foreign buyers and speculative investors has diminished as well. Both of these factors had been associated with the swift, extended, record-setting pace for price increases that consumed the market for months (and years, really).
With these layers of economic influence being pulled away, there is emerging evidence of movement towards a more balanced market, but a few more criteria will likely have to take root before that balance is full realized.
My View From The Real Estate Trenches
While it's premature to be certain how recent announcements and measures are impacting the market, I've found about half of my Buyers remain engaged in the market but are not actively bidding, while the other half are bidding with the objective of owning their purchase for the long term. Basically, it seems that if Buyers were in the early stages of their real estate search - with a desire, but no urgency, to buy - they're now more inclined to wait things out. However, if the Buyers have been on the hunt for a year, lost a dozen bidding wars, or their landlord is evicting them to personally occupy the space, for example, then their motivation has them still sufficiently invested in the market.
There's no question that the intensity of the market has abated; realtors across the city core are experiencing a drop in the number of bids on their listings, compared to what we saw prior to the Government announcements. However, final sale prices don't appear to be much less than what they otherwise would have been. Yes, there are some anomalies, with some 'deals' appearing (often for properties where the Sellers are highly motivated to sell their existing dwelling in order to close on the property they purchased in March), and other 'precedent setting sale prices' that still raise eye brows (like my 1880s Bay & Gable Victorian In West Queen West Which Sold In 48 Hours For 24% Over List! - when the first three Buyers viewing the property all submitted offers). But, these property sales are being dictated by condition, size, location and price point, meaning the best of the best will go into bidding wars, while anything with an 'if' may not. What I'm definitely bearing witness to is that the Buyers who have locked down properties this month aren’t concerned by the possibility their purchase will decline in the short term, as they're committed indefinitely to their buy and/or they have very deep pockets!
There has been some confusion in the market, as Sellers explore whether they can truly 'cash out' now, or if it's too late to achieve their 'dream price'. A lot of homeowners whom have come to market since the government intervention have been sticking on attaining a specific dollar sum. Some of these listings come to market at a low list price with a holdback on offers for a week, and subsequently don't spike to the sum the Seller wants, resulting in relisting at a new higher price. In other instances I'm seeing properties listed for sums nearly 75% to 100% higher than what they attained five years ago come to market for a few weeks, and are then taken off. This on-and-off up-and-down listing scenario is adding a layer of confusion to the dynamics of the market which we've never experienced before, in part because every time a property is listed, terminated, and subsequently relisted at a higher (or lower) price, it is considered a 'new listing' by the Toronto Real Estate Board, therein skewing the stats. This phenomenon of the same property being listed multiple times at different prices in a short time span are just beginning to be reported in the media, including this piece in the Globe and Mail called Flood Of Toronto Listings Not All That It Seems.
Regardless it remains a Sellers market, but there is definitely a cooling off. Last weekend - which was sunny and warm - saw a significant reduction in the number of people attending Public Open Houses. Before the government intervention a month ago, a weekend Open House would see upwards of 100 people+ swarming a property with keen interest. Now you're seeing a couple of dozen people popping by on a Saturday or Sunday. It's a very different psyche for both Buyers and Sellers right now, with everyone being curious and cautious.
Last week I explored How Demographics Affect Toronto Real Estate, and while demographics isn't the sole factors on why Sellers are cashing out, it's an important variable in the Toronto housing market that will grow in importance and our population ages.
Buyers and Sellers Must Shift As The Market Does
So what does that mean? Even if the market only pulls back slightly or swings towards more balanced conditions, it’s a new playing field, for Buyers and for Sellers. I can certainly attest that hope is being renewed for my Buyers who have been sidelined from the market, or who lost out in a series of bidding wars this past year. Some of my Buyers are on the hunt for the most desperate of Sellers to 'make a deal', while others remain committed to securing exactly what they want at the market price required when it comes to market.
For Sellers, this market shift may seem even more significant, because seemingly in the blink of an eye, the market has changed direction. And for months, Sellers have been able to name their price, with full expectation that they would be able to get it - and more - which was demonstrated in sale after sale after sale in the City of Toronto over the last few months and longer. It’s a hard transition, no question.
As the market comes back down to earth, on an emotional level Sellers will need to align their expectations, as we touched on in my recent post: “Dear Urbaneer: Will We Have To Accept Less For Our Home If The Market Shifts?”. From a pragmatic level, Sellers will need to align their strategy with a new market reality. It’s time to change the tools in our real estate toolbox - like negotiating - which I'm expert given it was a Buyers' market when I started my real estate career in 1992. Back then the Toronto real estate market was still declining from its peak in 1989 (the recovery would begin in 1995).
Thanks in part to the flurry of media headlines about bidding wars and monstrous sums being paid for homes, the overwhelming focus for Sellers earlier this year was garnering even more money than they believed possible. And while the focus still is about getting top dollar, as the market shifts Buyers are no longer simply relieved to secure a property - even when for one dollar more than they had. Today's strategies for both Buyers and Sellers need to align with the changing conditions. Remember - top dollar is a relative term for everyone now - which I’ll discuss further below.
Sellers, Resist Digging In Your Heels
Don’t lament or focus on what your house might have sold at a few months ago. That was then and this is now.
Remember, first and foremost that real estate is a commodity, which means that it is the market and the market alone that dictates price. You can only sell your home for as much as someone is willing to pay. Having the mentality of ”I’m getting X or I’m not selling" is completely counterproductive to your own success. Although on the surface, in relation to the previous market conditions, Sellers might feel like they are leaving money on the table if they don’t ask for “X”, in reality they may actually be costing themselves more by not reacting fluidly to a market shift.
For instance, if a Seller refuses to sell for less than a certain price expectation and market values do decline, their obstinacy could result in their holding a property for a very long time or incurring carrying costs; if they eventually relent and price their property within the market norms, selling their home, the depreciation at that time may be significantly more as a result of their delay. Also, if you are unreasonable with your price expectation, you are eliminating potential Buyers from the pool (you want to expand your buyer prospects).
The moral of this real estate story is “make hay while the sun shines.”
Look Beyond The Sale
Before you even plan to sell you’ve got to consider what your options may be for investment with the funds from the sale. It is critical Sellers assess how they're going to allocate the capital they're extracting from the sale. Even if their property sells for a sum lower than the owner's expectation, if the market does transition it is feasible the funds could be placed in an investment vehicle which generates a better return than the housing market, whether it’s declining, flat lining or improving.
With all investments, whether locks or stocks, it’s about diversity and planning ahead. Understand your options before you are faced with a decision so that you know you’ll get the most bang for your buck, taking advantage of different movement trends in the market.
House Values Usually Fall in Tandem
While you may be focused on the fact that you are getting less money for your home that you might have expected, remember that the market generally shifts as a whole. That means that the home that you intend to buy is likely at a lower price point too. It’s all relative.
If you're selling a property to buy another, instead of being attached to a specific sum as a bottom line, take time to explore whether the next dwelling you'd like to purchase might also be secured for a lower amount. In the last real estate crash - when values dropped upwards of 35% - savvy people sold their existing smaller homes - even at a loss - in order to climb the property ladder.
Think about it. If prices were to drop 20%, your $1,000,000 house would subsequently sell for $800,000 (a 200k decline) while the previously $2,000,000 dwell can be secured for $1,600,000. There's merit in climbing the property ladder in a depreciating market. Consider how the emerging opportunities in this market shift could aid your overall housing strategy.
Sellers, Strike A New Balance
Realize that sticking to a “price only” attitude is probably going to create more stress in your life - and what is the dollar amount of that? As the market balances, it will probably take longer for homes to sell, which means among other things, having your home in show-ready condition for a longer period - which is ultra-stressful.
You might pay a hefty non-monetary price for stalling/delaying/derailing a life change because you're attached to garnering a specific amount for your bricks and mortar. Success isn’t always about the money. Maybe selling your property at whatever sum it attains within the existing market forces liberates you to move your life in a new direction, whether that be personal, professional, or geographic? Digging your heels in for a specific set of dollars invites stagnation, for how can you move forward if you're holding yourself hostage to an unrealistic expectation?
I always underscore the value of “Home” and how it supports the quality of your life. This applies to selling as well, when you could potentially hamper the quality of your life for the sake of a price point.
New Day, New Competition
Competition is a usual event in real estate, but when there is an uptick in listings, the competition is less about Buyers competing in bidding wars, but becomes between Sellers trying to promote their property over others in order to appeal to the most Buyers. It’s also about trying to convince Buyers your is the better property.
Neutralizing your space, decluttering and cleaning are essential. Don’t neglect minor repairs. Stage your home to appeal to the broadest Buyer base and know your target market. Urbaneer offers a Style Enhancement Service, where we help fuse your belongings with some treasures from our cache to present your home in its best possible light.
Also, don’t underestimate the value of curb appeal when you want your home to stand out (this goes for condominiums as well). It’s when Buyers cross your threshold that many of their purchasing decisions are made.
Are you considering selling your home, but the market shift has you concerned? We can help you develop a strategy today that suits your objectives and leverages market opportunities!
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