It's time for a quick update from the real estate trenches!
So, after a typically slow Summer market impacted by scorching heat waves, Olympic distraction (Go Canada!) and the withdrawal of exhausted Spring buyers recuperating from their house-hunting fatigue, we're now two weeks into the start of the Autumn market. As such, I'm actively attempting to gauge the dynamics of Buyers and Sellers operating within the downtown freehold and condominium housing markets.
First, I want to re-inforce that today's blog is very much anecdotal. As a realtor working in the Toronto core, we're constantly attempting to assess how the downtown market is swaying, or shifting, in real time. However it's still early in Autumn, so we're operating with limited data to make any accurate assessment. That said, it's not quite like the Spring market (from which the recent Toronto Life article called House Wars is based). As a realtor operating in the trenches, I played my own role with some of the properties mentioned, which I shared a few weeks back. You can read about that, and have a chuckle while you're at it, by clicking HERE.
The slow pace of Summer did dampen real estate values, as the lack of Buyers left highly motivated Sellers little choice but to slash their prices in order to secure a sale. In one instance, a detached, renovated house in coveted Bloor West Village that had sold for $1,095,000 at the end of March 2012, was relisted by the new owners in August for under $1million. It then resold at the beginning of September for $120,000 less. Was this 10 percent plusdrop an indication that the market is adjusting? Will prices not exceed the peak values of Spring 2012, or was this an isolated example?
Without question, this single sale significantly impacted the entire neighbourhood. The reduced sale price effectively set a new benchmark of current market values, forcing everyone else on the market to reduce their prices accordingly. Yes, one sale can trigger a shift in its own particular market, regardless whether that market is a particular neighbourhood, or one particular condominium building. When it's a Buyer's Market, values can be easily influenced by the most desperate of Sellers.
Just after Labour Day, a house near Bloor and Spadina in the Prime Annex came to market for $1,095,000. All the recent comparables from the Spring suggested that this house was grossly underpriced and could sell up to $1.4million. It was crawling with Buyers and heading for seven offers when, in the final countdown, the offer tally suddenly dropped to four bidders and the house sold for the 'reasonable' sum of only $120,000 over list (or 12 percent). At $1,220,000, I believe this also reflects a potential 10 percent drop in values attained in the peak of the Spring market.
Just over a week ago, a charmingly renovated two and a half storey, semi-detached dwelling on a deep lot with parking, located in sought after High Park came to market for $649,000. Having last sold for $452,000 nine years earlier, the list price more or less reflected the substantial renovation costs the owners had spent during their tenure. The house went into competition the day it came to market and sold for $811,000, or 25 percent over list. Although one might exclaim "Wow!" over a house selling for 25 percent over its list price, this sum basically reflected the Seller's profit over a nine year period. That isn't particularly remarkable. Why was it priced so low? Does the low profit realized by the Sellers ultimately reflect a change in the market?
On the heels of this sale came a surge of other low priced properties. In fact, unusually low list prices are becoming more common place right now, and shockingly (to me at any rate) at prices similar to the market values attained in 2010. In other words, many realtors who are accustomed to listing low to create bidding wars are convincing Sellers to list at 2010 prices and let the market determine how much the property has increased in value over the past 24 months. I find this bizarre.
Here's an example. Two weeks ago, two houses across the street from each other at Yonge and Eglinton were posted on the Multiple Listing Service at $899,000. The one with the 1970s total gut renovation, which in its day was so cutting edge that it still felt reasonably fresh 40 years later, sold for 20% over the list price. However, the tired and forlorn dwelling, even with its sizable family room addition, still remains available 14 days later. I believe this signals that, while there are still more Buyers than listings, those Buyers either only have enough capital to cover their down payment with little left to renovate, or that they'd rather finance a purchase already renovated (rather than undertake the task of improvement, which may not be conducive to busy lives). It also indicates that 'flippers' who renovate for profit are withdrawing, as they suspect the market is cooling to the extent that generating a profit on a renovation, even in a Triple AAA location, is questionable and risky.
The Globe and Mail is all over the 'rapidly changing' real estate market as reported in the Report On Business on September 17th. Click HERE to read that story. However, given I'm focused on a very specific geography rather than the country as a whole, I'm keeping tracks of city wide stats. The Toronto Real Estate Board recently revealed the first two weeks of property sales this month are down 15% from last year though prices are higher. Click HERE to read that summation. Note that condominium sales in the 416 Area Code (central city) are down 32% from last year! So what does this mean?
From the real estate trenches, it appears the recent changes by Canada's Finance Minister to mortgage financing have definitely restrained the ability for first time buyers to actively engage in the market, and
speculators investors have all but withdrawn. This is effectively stalling the market, which leads me to predict the condo market is on the brink of a ten percent correction. In fact, I think we'll see this start to occur over the next six weeks. To avoid prices dropping, our market needs to have sustained momentum, for if first time buyers pull out of the market, it will prevent existing owners from filtering up of the housing market. However, should prices drop, it may mean existing condominium owners could see whatever equity they have erode or disappear, to the point it may prevent them from selling and moving up the property ladder into the freehold housing market. This would drag the market momentum and overall values too.
Interestingly, while condominiums under $600,000 are stagnating, the $600,000 to $1million range remains active. This could be for two reasons. First, a lot of condominiums in the lower price points are ubiquitous high-in-the-sky teeny tiny crackerjack boxes that people simple refuse to buy because they're too small and lack any special uniqueness. Second, it could be that demand exists for the 600k + market because so many down-scaling zoomers have, or are, cashing out of their larger properties and buying spacious retirement city condo-pied-a-terres. This past weekend my phone rang off the hook from prospective buyers who saw my Innovative Space Ad in the Globe and Mail promoting Marvelous McMurrich for $679,000. This property received an offer within forty-eight hours of coming to market, which signals that, while I think portions of the condo market are heading for an adjustment, some may weather the storm better than others. Did you read my Summer 2012 Forecast Part 1 and Part 2 which addresses which condos make the better investment?
Of course, even with my twenty-two years of sales experience and expertise, operating within a fluctuating market there can't help but exist inherent contradiction, particularly as it pertains to the market. After all, the bidding wars are continuing and I still have Buyers who are submitting bully offers to secure exactly what they want. And given the US government announced this week they won't be increasing interest rates well into 2015 (which suggests Canada may have to follow) we could see some continued momentum in the market. Certainly though, an increase in interest rates would definitely shift values. To contradict this, the Ontario government announced this week that personal income tax revenues shrunk by four percent, which indicates incomes are not increasing in Ontario, which obviously impacts affordability. If Buyers aren't earning more, they simply can't afford to pay prices that are any higher than where we're at, which suggests we're heading to market stabilization at best.
I am not a sensationalist, so I'll leave that to the mainstream media to hype up what will be a wonky market for the next little while. That said, if listing agents of freehold housing in the central city are choosing 2010 list prices to keep the bidding wars happening, it means we will experience even more ups and downs on what constitutes 'market value'. The condo market just isn't having that happen however, which means we're seeing the market splinter. This will basically keep a lot of us somewhat dazed and confused. Regardless, know that prices are not rising, and you don't need to buy property with the fear that you may be shut out of the market if you don't.
Do you have questions? The urbaneer team is always here to help!