Welcome to July's Homewatch post. In this installment, we discuss why the hot Toronto real estate market can leave Buyers and Sellers alike feeling overwhelmed.
For many, there is a natural trajectory of life events: school leads to employment which affords the funds to purchase a home. Home ownership is really a means to an end; it provides shelter, one of our most basic needs. But it's also an excellent investment, and grants the opportunity to grow one's wealth over time. Lastly, home ownership comes with a certain status and security, to which many people subscribe.
Given the fast moving pace of the market, if the status of home ownership is a goal for you, you - quite literally - are in, or you’re out. As Toronto real estate prices continue to climb, the window to jump through into home ownership begins to shrink for those with financial constraints. Often this can mean panic begins to set in.
As market conditions fuel fear and stress, the heart begins to rule the head for those trying to stake a claim. Buyers find themselves willing to pay whatever it takes in many cases to get into the market. Conversely, Sellers who are aware of this dynamic are fully prepared to ask (and expect) huge sums for their properties. Some characterize this as greed, but many more characterize it as a shrewd strategy that market dynamics not only permit, but support quite well.
The impact of this push and pull of panic met with greed and high expectations? Property values continue to climb, because as long as Buyers are willing to pay what Sellers are asking, they will continue to rise. It’s a bit of a chicken-and-egg scenario, because each party needs the other for this dynamic to continue.
The other offshoot of this market dynamic is that the gap grows between the real estate 'haves' and 'have nots'. Much like the shrinking middle classes in our general demographics, those who are in the market (and those that are able to gain access, even by the skin of their teeth) will continue to ride the wave. Those that are unable will see their dreams pull further away from the shore, as that particular wave goes on. This has socio-economic impact, which is something that urbaneer has touched on several times in the past.
The Bully Offer
A bully offer happens when a Buyer registers an offer shortly after a property comes to market instead of waiting for the prescribed offer night (typically a week later). What usually happens is that for the Buyer to entice the Seller to take their place off the market without adequate exposure, is that the offering price has to be well above asking - as in ten percent or more - in an effort to secure their hold on the property.
The idea is that the offer has to be so substantial that the Seller feels compelled to take it. This also feeds into that ever-present emotional component of the market - panic, frenzy and general chaos. The combination of these factors serve to increase property prices even more.
What is concerning here is the rapid increase of the use of bully offers as a strategy. These days, it's not uncommon for Buyer agents to ask the agent of the Seller if there is a risk of a bully offer snapping up the property before their clients have a chance to submit on offer day. It reflects Buyer frustration, but also shows a rather unpleasant underbelly in this frenetic market: intense chaos with a slightly savage tone - the side-effects of intense, win-at-all-costs competition.
Who’s Your Neighbour?
Another factor is the growing phenomenon that sees a Buyer - often a flipper or a builder - coming in and snapping up a dwelling, gutting it to the studs and slathering all sorts of high end finishes and fittings in it, or knocking it down and building a monster home on the parcel of land. We've written a fair bit on our disdain for poor flippers (though we're on board with those who create excellent housing).
This phenomenon - which is happening across all urban neighbourhoods - fuels an increase in the property values in the area, while potentially damaging the visual character, and changing the resident profile of that specific area. When it comes to communities, continuity can matter - a lot. This begs the question, is it worth driving up hefty property prices at the expense of neighbourhood character and community well-being?
This works in the reverse as well, when neighbourhoods filled mostly with single family homes find themselves new neighbours to increased intensification, like condominium buildings. Either way, when you vary too far from the perimeters of the general look and lifestyle of a neighbourhood, you risk creating a wedge amongst new and old guard residents. While some may say this isn't very neighbourly, cities are in constant flux and change. So the question is, are neighbourhoods allowed to change too?
Are you left scratching your head with all the ins and outs of the Toronto housing market? Urbaneer has both the knowledge, training, education and experience to help you fully understand the meat of market dynamics- and to help translate it into a winning strategy for you, whether you are buying or selling. We are here to help!