Should you take advantage of the reduced prices now, or is there more pricing volatility ahead?
This is the most common question we receive from potential buyers today, many of which are concerned about additional rate hikes and the possibility of a recession. This idea is magnified further by the news who love posting weekly articles from banks and other institutions predicting an impending housing correction. This may sound snarky, but a housing correction has been predicted every year for the last 15 years… even Wiarton Willie has a better average than that.
How do you filter through the noise?
Focus on the data from a macro level that is more reliable:
■ Ontario’s population is projected to grow by more than 5 million by 2050
■ 35 – 40% of that population growth will take place in the GTA
■ Construction of new housing units is consistently below the number required by approximately 10,000 housing units annually. With thousands of additional units cancelled in the past few months
■ Toronto continues to rank in the top 10 most desirable places to live in the world
■ Tech sector is growing rapidly in Toronto, with CBRE stating according to their data Toronto is growing faster than any other American tech hub. Additionally, Canada offers a significantly easier immigration process for companies to recruit global talent, a major problem facing US-based counterparts.
Until such time as Toronto’s population begins to decline on an annual basis like it is currently in Japan, the data supports long-term housing appreciation
The average price in Toronto is down approximately 16% in July from March highs, and when looking at some 905 areas that price reduction approaches 30%. This means you can get the same amount of home for less, or more home for the same price as before.
Looking back on the most recent three price declines of ‘07-’08 (global financial crisis), ‘18-’19 (introduction of the stress test and foreign buyers tax), and ‘20 (pandemic), every single time prices recovered to previous highs in under 4 to 14 months. The four most dangerous words in investing are “This time is different”.
Unless you are buying with the intention of selling in a very short period, focus on “time in the market” and not “timing the market”. Just as quickly as the market turned negative in May, the market tends to recover very quickly and by the time the average buyer recognizes things are improving, you’ve missed the boat.
With that said, currently, there are still opportunities for negotiation, conditional offers and “shopping around”, making the buying process less risky and more relaxed. This means if you are currently thinking about buying, plan to live in the property yourself, and plan to do so for years to come, then yes, it is a good time to buy.
For those needing to buy and sell, buying and selling in the same market mitigates your risk.
What about rising inflation rates?
The BOC raised rates again in September with plans to continue to do so amidst the US Fed increasing rates by 75BPS on Sept 21. Beyond that, we must look at the history of rate hikes in Canada to get an idea of where we are heading. Over the last 30 years, every significant rate hike was preceded by a larger rate decrease within 2-3 years.
As a team of full-time agents with “boots on the ground” we have already felt a modest shift in the market in August and September. Properties are beginning to sell a little bit quicker and values seem to be holding, especially in the condo market. Buyers are already adjusting to the new rates and with rapidly rising rental prices, there is motivation to buy.
In summary, the Toronto real estate market is built on a firm foundation (pun intended) and although it is hazy in the short term, we are confident that if you are looking to purchase a home for the long term then the relaxed pace and lower prices of the current market absolutely offers a great opportunity. Anecdotally, over the past few months, we have had a number of clients finally land their dream homes thanks to the flexibility to include finance clauses and negotiate prices that work for them. Some of these buyers had been barred from the market for over 2 years, now they are happy homeowners thrilled to finally embark on their next chapter.