Welcome to my blog on housing, culture and design in Toronto - where I share my insights and experiences on most every aspect of the Toronto real estate market - and life here in The 6ix. In this post I'm going to explore how Buyers and Sellers should adapt if market conditions shift.
Each summer in Toronto - as part of our collective recovery from the first 5 months of the year's weather - we find solace in barbecues, beach time, cottage respites and vacation time - and reconcile the scorching heat waves that best us. All of these result in the Toronto real estate market succumbing to a doldrums of sorts, where there are fewer sellers, fewer buyers, and fewer realtors, engaged in the trade of property, because the majority of market players are distracted. So, now that Labour Day has come and gone, sending everyone back to school, back to work, and back to business, the big question for most everyone in the trade of real estate is: "Will Autumn prompt a recurrence of the ramped-up pace we experienced in the Spring (like this post of mine from March 2018 called On Toronto’s East Side 42 Buyers Bid On 3 Properties Tuesday Night), or will it falter due because we're officially in an exhaustion movement, or will a sudden increase in supply outpace previous pent-up demand?
According to a well-crafted study from Realosophy, 988 Toronto home owners lost $136 million in the five months following last year’s market peak when The Provincial Government Unveiled The Ontario Fair Housing Plan. Sadly, these were the people who got caught when Government interventions went into effect leaving these highly motivated Sellers to sink on their land ships when “Toronto, Vancouver Home Sales Slumped As Buyers And Sellers Waited On Sidelines”. Even I documented price drops upwards of 20 per cent during this time from the real estate trenches in my post The Wackadoodle Toronto Real Estate Market As we moved into Autumn 2017, the real estate market in the original City of Toronto was great for condos but less so for houses, and as we approached the New Year there was additional concern that the Federal Government's mortgage stress test intervention - which went into effect on January 1st, 2018 - would continue dampen both the purchasing powers of Buyers and the level of activity. In fact it did, though it's didn't stop a lot Purchasers from buying. Most simply bought less expensive properties. The byproduct of this resulted in the more affordable condo market skyrocket in value, which I shared in Here’s What’s Happening With The Toronto Condominium Market. So now the question is "How will the market be this autumn, and could it result in impacting market values?".
What is market value? I discuss four approaches to calculating value in Exploring Toronto Real Estate Property Values. Economically, it is the price that a Buyer is willing to pay and a Seller is willing to accept at a specific moment in time. As we’ve seen in Toronto, a lack of supply combined with the 'Fear of Missing Out' drove our prices up considerably until the government intervention last year made the market stall. Since then, depending on where a property is located, Sellers have had to re-adjust their perception on what their dwelling is worth, while Buyers had to re-align what their own matrix of value means in current market conditions. I talk about the concept of value beyond dollars in housing for Sellers in Dear Urbaneer: Will We Have To Accept Less For Our Home If The Market Shifts?. And for Buyers exploring the complexity of finding their 'Prince Charming of bricks and mortar' it's worth reading my post on The Psychology Of Real Estate, Housing & Home.
The concept of value is always subjective as it relates to the context of your end goal. It’s not simply about assessing the market and the likelihood that the property will be worth more than when you purchased it. This article “Why Canadian Homebuyers Are Playing ‘A Different Game” discusses how much a Buyer should be willing to pay theoretically in the context of a buying motivation. For example, a long-term Homebuyer who hopes to live in the property for years would look at how prices have gone up over the long term and how their purchase price compares against that; whereas the speculative investor is concerned with how large the profit margin might be in the shortest amount of time as it aligns with the seasons of real estate, while the medium to long term investor is ultimately interested in the income cap rates while monitoring the dynamics of supply relative to demand.
Buyers should always look for similar elements to preserve and grow asset value - like proximity to shopping, public transit, schools and green space. Remember, you can change the house but you can't change the location, so look for these Seven Factors On Choosing A Winning Location as part of your purchasing decision. And if you're purchasing a condominium, my advice is to always look for the unique. This may be in its architectural styling, generous outdoor space, a protected view, an intelligent layout, or elevated features and finishes - which are qualities that will always attract buyers amidst the sea of ubiquitous concrete crackjack boxes - and will help you garner top dollar when you re-sell. But first ensure the building has solid fundamentals which I share in Five Points to Ponder Before Buying a Condominium.
As for Sellers adjusting expectations, let me share a recent experience from my Real Estate Trenches. Not too long ago I was meeting with some Sellers who had been challenged in finding a Buyer for their house-sized Don Mills condo. Listed over $1mil, the property was situated in a mostly car-reliant area (though the public transporation is pretty decent in this location) which, despite its massive geography, had seen only one condominium over $1million sell this year. The stats show the volume of sales had already dropped 47% in the past year, and that the median freehold house price in this MLS district has dropped from nearly $2.4mil to just under $1.7mil. A significant part of this condominium's target market have always been local residents downsizing to a condominium. Last year, Sellers who could have reasonably expected to get $2.4mil for their property were now having to slash 10% or more off their property value, so it made sense that in realizing less money for their house their downsizing budget would also be reduced. And given most downsizers aim to spend half or less of the value of their property sale on their next buy, they were pursuing less expensive units, if they were at all. given a lot of previous potential Buyers simply withdrew from the market rather than make a move. The result was a smaller pool of active Buyers who were seeking less expensive condos. The result was the over $1mil condo market in this area was stagnating.
My counsel to these Sellers and you, if you're in this situation? Recognize the value of your property is a function of your target market, including the purchasing capacities of those active Buyers at the time you're listing, and specifically the ones who are expressing interest. So what happened? Fortunately we reached out to a Buyer's realtor who had lobbed in a verbal offer a month earlier that represented a 5% decrease in values from the year prior and inquired whether there was still interest. When the answer was "Yes", we had the Buyer's realtor resubmit her offer, resulting in achieving a firm sale five days later - making it the second condominium to sell over $1mil in this MLS district in 2018. If you're selling, be aware that current market conditions require a concerted, calculated, data-driven strategy in order for you, as the Seller, to extract and yield your profit. Until you, as the Seller, aligns with the psychology of values that the current market presents, you may be stuck holding onto your property until real estate values increase to meet your number.
With my bi-annual forecasting, I always reflect on where the market has been to understand where it is going. No doubt, with all the economic, social and political influences in recent months and current day, being a Buyer or a Seller in Toronto real estate can be a bit daunting. But as we look forward to the future and consider the direction forward, rest assured that Toronto real estate continues to have a number of fundamental that position it for continued growth. For instance, check out this article "Toronto Ranked One Of The Most Future-Proof Cities In The World" that discusses how highly Toronto ranks globally based on influences like higher education infrastructure, innovation capability and technology firms. These are just the things that support the path ahead, and Toronto cracked the top ten in the world, taking the #9 spot. Not bad!
Personally, I'm quite confident that the freehold housing market in the original City of Toronto is going to remain solid. There simply aren't enough houses relative to the demand. In fact, I think there's a good chance The Lack Of Supply Will Fuel The Toronto Housing Market This Autumn. However, I'm a bit more on the fence with the Toronto condominium market, as I fear it's massive escalation in prices this past year may have taken values to the top end of affordability for most first time buyers. Just as critical, current values far exceed the rents units generate at a decent cap rate (here's Does It Still Make Financial Sense To Invest In Downtown Toronto Real Estate?) despite the fact the new Rent Control intervention capping rents on all housing stock is not diminishing rental prices. Given we all need shelter, as far as I'm concerned as long as you're willing to embrace a buy & hold approach to any real estate purchase, you're going to be just fine when it comes to Toronto Real Estate.
Here are some great supplementary reads:
Thanks for reading!
~ Steve & The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
- we're here to earn your trust, then your business -
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