Bosley Realestate

Dear Urbaneer: Will We Have To Accept Less For Our Home If The Market Shifts?

April 28th, 2017 | Dear Urbaneer

Welcome to this month’s installment of Dear Urbaneer, where we tackle tough real estate questions in an effort to put our clients’ minds at ease. This time around, our clients who are preparing to put their home up for sale, are stressing on whether they'll get as much as they want now that the provincial government has announced new rules, regulations and taxes.

 

Dear Urbaneer:

We're selling our home after making a commitment a few months ago to relocate outside of Toronto. As we prepare to put our place on the market - which is coinciding with the Ontario government's new measures to 'cool the market' - my partner and I are disagreeing on how much our residence might sell for. Obviously, we want to get as much as possible, but that objective doesn’t seem as cut and dried as we would originally have thought even a few weeks ago. It seems to me that, given the market conditions are so uncertain, it’s feasible we might not get the sum we hope for. What’s more, I feel like if we don’t get that amount, then maybe we shouldn't sell. My partner disagrees and feels we need to move forward with our lives regardless of the sale price our house commands. It's true we'll be making a return on our investment, but I worry it might not be nearly enough as I want.'

Do you have any words of advice?

Signed,

Pricing Problems

 

 

Dear Pricing:

There's no question Sellers are experiencing unexpected stress and anxiety over where the market is headed since the Provincial Government announced its intention to influence our property market on April 20th. After witnessing huge precedent setting sums for Toronto properties through the beginning of 2017 and prior - and the ensuing price escalations that spread into surrounding regions - those Sellers who missed listing their properties before the mid-April announcements found themselves suddenly disrupted. Instead of confidently cashing out during the perceived 'peak of a bubble', Sellers are reconciling their property may garner less than more, which is its own bitter pill to swallow. After all, when the stats show newly built detached house prices climbed a staggering 67 per cent, year-over-year last month, one can't but help think monetary riches are inevitable. But what if that's no longer the case? Is now the time when Sellers have to reconcile getting less in a changing real estate market?

First, there's one nutshell of a truth that needs to be cracked for all to see. Essentially - regardless of market conditions - every homeowner has their own opinion of value for their property and, well, it's frequently for more than what it might actually garner on the open market. This is often because owners not only believe the improvements they've financially invested over time are 'spectacular in execution and in taste', their emotional investment in their 'home' has layered an additional intangible premium that sometimes only they - 'in the eyes of the beholder' - can see. Fortunately for many Sellers, the push up in real estate prices over the past two decades has ensured Sellers attain the sum they actually thought their house was worth (or more!), but in a market where every headline as of late is about a 'financial windfall' bestowed a Seller to the magnitude of a lottery win - these perceived values often become skewed. With the market being particularly frothy these past months, Sellers can't help but 'hope and dream' they'll be as fortunate as the 'headlines'. However, falling prey to the sensationalism of the media comes a risk (or reality) that one is attaching an expectation of value which is overly inflated and unfeasible. In fact, as of late I increasingly hear Sellers saying "If I don't get 'x' dollars then I'm not selling!"

So why wouldn’t you expect to realize the same windfall-like return on your real estate investment that your fellow Torontonians have? The short answer is that this market is not rooted in reality and that material measures in the Ontario Fair Housing Plan may potentially pull those values much closer to earth.

 

 

Keeping Up With The Joneses

In the Toronto real estate market where prices have been escalating for decades, catapulting significantly over the past 12 months - and suddenly skyrocketing even higher just this year (33% higher for the average resale dwelling than a year ago) - owners have long been invested in the belief their properties are worth substantial sums of money. But lately the hype is fueling expectations which might not be feasible. To play Devil’s Advocate regarding the expectation of a lofty sum on your sale: You could argue the point that these huge sums are the by-products of a number of economic forces that have deeply shaped a market trajectory: a wild mismatch of supply and demand, momentum from low interest rates, speculative investment, foreign investment, and emotional energy from the panic of the fear of missing out.  So really, given that these elements are still present and a influential force in the market, shouldn’t you be able to expect to keep riding the property values up?

Not really, because you need to look at the market as a whole - not a snapshot in time. This succession of huge prices being paid out for homes gives a whole new meaning to “keeping up with the Jonses”. And even though your neighbour got a hefty sum for your house doesn’t mean that you should expect to sell for the same.  Why? Because he sold yesterday when the market said “X” and you are selling tomorrow, when the market will be saying “Y”.

And bottom line? The market dictates price, not the Seller.

While the past is indeed a prediction tool for market trends, you need to look to the distant past to really get an accurate sense of how the market works and understand that there are inevitably highs and lows. I am uniquely sensitive to the plight that currently faces Sellers (or will soon). This is because I have already encountered (and survived while guiding my clients) through a similar scenario at the beginning of my 25 year career as a Realtor. I entered the market professionally and then saw values fall by 35 per cent (and more). Indeed, I do empathize with Sellers and recognize the challenges in aligning expectations in a changing market, but there are ways to navigate this shifting market and experience success. A change in market dynamics means a change in strategy. We're going to talk more about what that means for Sellers in an upcoming post. Stay tuned!

Markets for decades have worked in cycles. This is seen in housing, stocks and in the general economy, with pattern lines that scope peaks and valleys. What is consistent in these peaks and valleys is an upward trend, connected with the thread of time, not a short, speedy burst, which is what has characterized Toronto’s market in the past months. What’s going on in Toronto is that we are in the throes of an upward trend. But on the side of every peak is inevitably a valley. What's strange about the Toronto real estate market, is that it hasn't seen a valley for over twenty years! Here's a history of Toronto real estate peaks and crashes in charts, originally prepared by Bosley associate Marisha Robinsky.

I’m not talking about the real estate bubble bursting (although the possibility of which always exists in a frothy market like this); I’m talking about the bubble around lofty price expectations from Sellers bursting as the market exercises a pullback. Just look to Vancouver for proof on how the market dynamics changed - as did the value of some properties - after the implementation of Governmental measures including a Foreign Buyer's Tax. Sales volume plunged 40%, although prices only dropped less than 4 percent.

This Financial Post article and a great video on 'What Is A Housing Bubble" touch on some important points: 'David Rosenberg: Make No Mistake,The Toronto Real Estate Market Is In A Bubble Of Historic Proportions'.

The key thing to remember is that you shouldn’t set the bar for your home sale based on what you’ve been reading in the headlines about huge sums. Your strategy should have a more solid economic base to determine not only value, but to determine what your expectations around that value are. As your home is likely your biggest asset, you need to feel good about selling it and you need to feel that you’ve received a good return on your investment. So how do you do that? By aligning expectations with real value.

 

 

The Many Sides of Value

Value is something that I’ve touched on a number of times. In “Exploring Toronto Real Estate Property Values” I talk about empirical methods that we use to determine a home’s value based on a number of criteria.

There is also intangible “value” assigned to housing both for Buyers and for Sellers, because of the numerous physiological and psychological needs that it fills, which I covered in Maslow’s Hierarchy Of Needs And Toronto Real Estate For Buyers and Maslow’s Hierarchy Of Needs And Toronto Real Estate For Sellers. Although intangible, this does figure into dollar amount for Buyers and Sellers.

One phenomenon that has recently emerged and is driving “value” is the role of the media in setting false expectations around prices in Toronto. It’s kind of a mob mentality, which isn’t so much about entitlement as a homeowner to garner top dollar, but in creating this sense of “normal” in the market.

For example, look at some of these recent headlines: “How Canada’s Real Estate Market Went Completely Insane” which summarizes “Skyrocketing house prices. Six-figure bidding wars. A Wild-West mortgage market". ‘How Celebrity House Prices Stack Up Against Toronto Real Estate”, where the rich and famous can swap their swanky pads for a comparatively modest parcels of Toronto real estate, suggesting that homeowership in Toronto is elitest because of the prices. Read “What Toronto’s Average House Price Will Buy You Around the World”. You can see how language and tone around the market paints a vivid picture.  But when you consider that language supports a point of perspective while economics actually create the environment, you can more reasonably see that values will pull back in the face of the new Government measures.

 

 

The Forgotten Emotional Component

From an emotional standpoint in a hyper charged market, there is emphasis and recognition on buyer fatigue, emotional toll of bidding wars and acute stress from a constant state of panic and the fear of missing out. But what is being overlooked is the emotional toll on Sellers, who, in the context of these headlines may feel a constant state of disappointment if they don’t get huge, windfall like sums from their sale. This feeling is actually nothing new, but it is amplified by the dollar amounts that are whirling about right now.

It harkens back to the old adage that the “grass is always greener’. Regardless of the actual market conditions, every Seller believes the sale price is too low (and on the flipside, every Buyer thinks they paid too much for their home); it’s about reconciling expectations. So at the end of the day, what we're each left to navigate is whether our expectations of our property's worth aligns with its real value at the time of sale and, if not, what we can do about it.

Remember, you can be a barrier to your own success if you don’t align expectations within the actual context of the market. That’s why you’ve got to separate fact from fiction and use a well thought out pricing strategy that is data-driven.

 

Are you having trouble framing your expectations around your sale? My team and I can help you develop a strategy that will get you top dollar in the current market, because we have decades of experience in varied conditions. Want to learn more? Here's Steve's Celebrating Twenty-Five Years As A Top-Producing Toronto Realtor!

~ Steven and 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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