How ironic that a “predictions” blog post from me, is, in itself, very predictable.
Yes, I do this feature almost every fall, but it’s borne of necessity, since the army of Toronto buyers and Toronto sellers are about to square off like the Lannisters and the Targaryens. I’m just not sure how the analogy takes the white-walkers into consideration….
Anyways, let me put my thinking cap on here and provide a few predictions for the three months that lay ahead, but also highlight what you need to be aware of as we move into what is essentially the spring market, on steroids….
1) Prices will go up.
What a salesman, eh?
I mean, this guy is a real estate agent, he writes a blog, and he has the gall to tell the reading public “prices will go up.”
Well, if the shoe fits, wear it.
I’m not saying prices will go up because I want them to. As I have said before, many times, I have no vested interest in prices going up. In fact, with my wife and I looking to buy a house that is at least double the value of our condo, it would make sense for us to cheer for prices to go down, since, assuming all things considered equal, the amount our condo goes down in value will be half of the amount the house decreases in value.
So take what I say, with a grain of salt, if you so choose.
But I’m saying prices will go up because, simply, they will.
As I write this, I don’t have the August TREB data, but I can almost guarantee that prices will increase this fall.
I suspect that the Average Sale Price for the month of August will be somewhere in the $740,000 – $760,000 range, meaning that it could represent a fourth consecutive month-over-month decline, or could be moderately higher than the July figure. But either way, the number won’t be significant.
What is significant, is where prices were to start the year, where they went in the spring, and where they are now.
You’ve seen this chart from me on many occasions, but why not take yet another look?
This is the average sale price in Toronto going back to last summer, and on the right I’ve marked the increase in average sale price from last December to this April (26%), and the decline from April to July (19%).
Now again, take this with a grain of sale because it sounds like BS, but I don’t believe that the decline in average home price, from a percentage basis, can be directly applied to the market out there.
The numbers say that the average sale price is down 19% since April.
Can you show me a $1,000,000 house in April that’s $810,000 now?
Or a $500,000 condo that’s $405,000 today?
I haven’t seen it.
I’ve given a lot of newspaper interviews on this topic, and the person on the other end of the line is always saying, “Yeah, that’s the sentiment out there; I’ve yet to speak to an agent who agrees with the numbers.”
Delving into those numbers, and looking at why they’re so low (ie. more luxury homes being sold in early 2017?) is a topic for another day.
There’s no doubt the market has dropped since March/April, but not nearly to that extent.
So allow me now to make a couple of predictions within this prediction, or rather further explain why my #1 point is “Prices will go up.”
i) The September Average Sale Price will be higher than July or August.
This is a no-brainer, folks.
First and foremost, we’ll be coming off four straight months of declining prices. Doomsdayers be warned – there’s nowhere to go but up.
Secondly, and more importantly, there is so much pent-up demand out there, and while we expect the market to explode with new listings after Labour Day, there isn’t, and likely never will be, more supply than demand. We’re going to see prices pick up right off the bat, and that Average Sale Price will push back over $800,000 in September.
ii) The October Average Sale Price will be higher than September.
September will fuel October.
The market conditions, the sales, the prices, and the buyer and seller sentiment in September will set the table for the rest of the fall.
We might see a slow first or second week of September, as buyers wait and see how things are looking, and sellers hold back listings to get new “comparable sales” posted on MLS that help with their pricing, but once we’re underway, it’s going to be busy.
iii) Prices will go up 10% from the summer.
That $746,218 “Average Sale Price” from July of 2017 is just shockingly-low.
So is it really a stretch to suggest that we’ll add 10% to that?
The $920,000 peak in April might not be attainable this fall, but a 10% increase from $746,218 would only result in an average sale price of $820,840, which brings us back to a level found somewhere between January and February.
A 15% increase, which sounds absurd for a 3-month time period, would bring the average sale price up to $858,151, which is still significantly lower than the March/April peak.
I think a lot of people know this, and this is going to further fuel demand.
I have more investor-clients right now than I had in the super-busy spring market, all of whom are looking to pick up 1-bed, 1-bath condos for less than they’d have paid in the spring.
2) Conditions will be reminiscent of the spring – and some buyers will be caught off guard.
Nothing will ever rival January to April of 2017.
I spoke to a reporter from Report on Business over the weekend who is putting together a significant expose on the spring market, and I think it’ll be a fascinating read.
How did things blow up so quickly?
Low supply, high demand, new tactics (both buyers and sellers are to blame for that one!), and ultimately mania. Call it panic if you want, but I think “mania” is a better word.
This fall, I expect low supply and high demand, but not as low supply as the spring, and not as high demand either. Interest rates have risen, government initiatives have been taken, and the buyer pool seems a bit more cautious. There are a host of reasons why the market is not like it was in the spring.
However, there are a host of reasons why the market will continue to be busy, and continue to remind people of what the spring was like.
Not the same, but similar, and that’s an important distinction.
If you’re a buyer, and you think you’re going to walk into an $899,900 semi-detached house, and be the only buyer “because the market has cooled,” you’re in for a rude awakening.
Yes, the market has cooled. And yes, the media are obsessed with covering the topic.
But that doesn’t mean that it won’t be business as usual in the busy fall market.
There will still be offer dates, multiple offers, over-asking sale prices, and bully offers.
The current levels of supply and demand necessitate it.
We might only see, say, three offers on that $899,900 semi, whereas we might have seen nine in March, but buyers can’t hope, dream, and will their way to a market that simply doesn’t, and won’t exist.
I wish we were in a balanced market.
I wish “every person living in the city of Toronto could afford to own a home,” as the sentiment often goes.
But despite a drop in the average home price over the past several months, and softer market conditions, we are not in a buyers’ market. We are entering a very busy, very shortened part of the real estate calendar, and there will still be competition for virtually every freehold home in the core.
Buyers who come into the fall market will incorrect information, and perhaps illusions of grandeur, will get left behind.
3) Rental battles will be fierce.
I’ve blogged about this over the summer here and there, so it bears mentioning once again.
When I was on vacation down in Idaho, I brought out a lease for a 1-bed-plus-den, 1-bath unit, listed at $2,150/month. All the lease agents in my office were teasing, “Get ready – you have no idea what’s coming!” They told me, “Some vacation you’re about to have!”
They were right. I got six offers in 36 hours.
But that was nothing compared to the stories I heard from the agents I spoke to.
One agent told me, “I just won a sixteen-offer bidding war for a rental in Liberty Village last night.” He was so happy, and so proud, and it was eerily reminiscent of the spring market for sales.
Another agent told me, “I’ve lost nine offers to lease………this week.”
I didn’t even know how that was possible, until he explained, in great detail, which nine properties he had lost out on for three different rental clients.
Some of you will suggest that the September 1st rental start date was the reason for the summer mayhem, and while that is a big date, I don’t think we’ll see a significant drop-off in activity in the fall.
In fact, the real reason for the fierce rental market, which is something I’d like to explore in Thursday’s blog post, is the unintended consequences from the Liberal government’s “Fair Housing Plan,” announced last April. There are fewer properties on the rental market, renters are staying longer, and there are fewer purpose-built rental developments underway. I’ll come back to this on Thursday.
I think the idea of paying $2,150 per month for a 700 square foot, 1-bedroom condo is crazy, and unfortunately, I can see how it’s impossible for somebody making $40,000 per year to find a way to live in this city. But circumstance and misfortune don’t change reality, and never will.
The demand for rental properties is high. The supply of rental properties is low.
Competition is fierce, and will remain as such.
4) It will go by very fast.
I’ve heard this a lot lately, although it’s been about something else.
“It goes by fast,” people tell me.
“Blink, and it’s gone,” I’m told.
This is primarily in reference to raising children, as people who have gone through it love telling others how quickly the time passes, and ultimately how my daughter will be going away to university before I know it, but it could also be said of the fall market.
The “spring” market, which starts in the winter, and ends in the summer, runs from January 1st to June 30th.
It’s a six-month market, broken up in the middle by Spring Break and the Easter/Passover holidays, but it encompasses half of the year.
A lot of buyers who start their search in the “new year” end up dragging their feet, and after losing an offer or two, they end up buying a home in May, and moving in the summer.
In the fall, that timeline just doesn’t work.
The fall market is only three months. It starts a week into September, and by the time you’re a week into December, the market basically shuts down for the year.
This is part of the reason why I think a bit of mania will set in eventually. Not to the same extent as the spring, but if you’re a buyer still looking by the third week of November, and you know that the market dies out in the first week of December, you’re going to push a little harder, bid a little higher, and be more aggressive.
5) The government will continue to meddle in the market.
You know when you get dry lips, and you keep licking them?
Licking them makes it worse.
But once you start, you just can’t stop.
It’s not necessarily an “addiction” per se, but rather an uncontrollable desire, both physical and mental, despite the knowledge that what you’re doing is having a negative effect.
I see a similarity when it comes to the government intervening in the real estate market.
The only difference is: they don’t seem to know what they’re doing is having a negative effect, or unintended consequences.
The “Ontario Fair Housing Plan” was a farce. It was 14 points of utter nonsense, and not a whole lot of people took it seriously.
The changes to the rental market are just insane. Forcing landlords to give a month’s rent to a tenant when the landlord wants to evict them for their own use is so over the top, it makes my stomach churn, and this is after the government brought in rent controls.
The Liberal government are continuing to lick their dry lips, and they just can’t stop.
They seem very set on the idea of regulating real estate agent representation, something I don’t agree with in the slightest.
Few governments are proactive; most are reactive. And just as the B.C. government leaped into action last year with a slew of new policies after revelations about shadow-flipping, and foreign ownership, the Ontario government must have watched that CBC “hidden camera” special on Realtors double-ending more than a few times, and now they’ve decided they need to act.
I’ve written entire blogs on this subject, so I won’t get into it now. I think the consumer deserves to choose their own representation, and they don’t need the government to meddle.
But the government has the taste for meddling, and I don’t think they’re anywhere close to being done.
What other policies could they put into place?
Your guess is as good as mine.
But nothing is off the table here.
The government doesn’t seem to think that building infrastructure to help move people to places, and allow greater urban sprawl, is the answer to the real estate crisis. Instead, they’re looking to win acknowledgement from the public with short-term, ineffective, band-aid solutions that they can announce in front of a podium.
So mark my words – we’re going to hear a lot more about government housing policies this fall, and as I said, nothing is off the table.
There we have it, folks!
My ‘brief’ thoughts on the market that lays ahead, starting today: the first day ‘back.’
Just like the first day of school when you were a kid, today had that undeniable feeling that summer is over. It was a couple of degrees colder, it seemed a wee bit darker out when you got up in the morning, and fewer people seem to be smiling.
Yes, we’re “back” from summer. And I never even got a chance to put my summer tires on my car…