Sorry for the lengthy break, but would you really have been reading my blog the day after Christmas?
Let’s take a look at what we can expect from the real estate market in 2013…
2013 eh?
I guess the Mayans were wrong?
So does that mean that ALL religion is bull, or just some of it?
Aaaaah, sorry, sorry. I don’t want to offend my non-athiest readers; just trying to start 2013 with a bang, and show everybody that despite the addition of a 3-pound toy dog in my life, and my impending marriage in June, I have not softened at all.
A lot happened in the space of three weeks!
The United States drove off a fiscal cliff, and then climbed back up. The stock market dipped, and then came back. And there wasn’t a single article in any Canadian newspaper about the real estate market!
(ahem…)
What do we expect for 2013? Geez, that’s a loaded question.
Last year at this time, I made a bold prediction that didn’t go over well with some of my colleagues. I predicted, on my blog, at our company meeting, and in my column for The Grid, that we would see “stagnant growth” in the real estate market, or something like 0-2% gains.
I was wrong, then right. That’s how 2012 went.
Last year started out with a bang, and by March and April, we were seeing the return of all-out “bidding wars,” and not the cliche kind either – the real deal! To me, a “bidding war” has multiple facets:
1) Double-digit offers (ie. 10 or more)
2) Multiple “rounds” of offers/send-backs/bidding
3) A non-sensical sale price (usually a record)
4) A buyer who paid far more than he or she ever intended
5) Emotion dictating the sale price
That is a bidding war.
What isn’t a bidding war?
Well, the existence of 3-4 offers is not a bidding war. That’s called “Toronto real estate,” in my opinion.
Show me the day when that gorgeous, 3-bed, 3-bath renovated semi-detached house on Frizzell Avenue in Riverdale, steps from Withrow Park, does NOT attract 3-4 offers, and I’ll move to Omaha, Nebraska, where it takes 10 months to sell a property for 71% of the asking price.
Some things never change, and the A++ houses will continue to attract multiple buyers, and thus multiple offers.
The existence of multiple offers does not automatically mean a “bidding war” is in effect. I think multiple offers on a great house is the norm.
The media loves to use the term “bidding war” in situations where it isn’t warranted, but savvy readers will take even the Wall Street Journal with a grain of salt.
Having said that, March and April of 2012 did see a return to the near-Biblical definition of a “bidding war,” and once again, all the buzz was about the booming real estate market. Both bulls and bears were coming out in full force, with people like Garth Turner and Tony Wong predicting a demise, and people like Brad Lamb predicting even bigger gains.
I’m not going to lie: I certainly did not expect to see 10% gains year-over-year, nor did I expect to see such incredible sale prices for the A++ homes. I will say, however, that thankfully the B+ houses weren’t getting multiple offers like they did in previous boom-periods, when any listing in Toronto seemed to be selling for over-asking. In early 2012, the exceptional houses did exceptionally well, but we started to see a few houses slip through the cracks by late-spring.
I remember talking to an agent in my office who said, “I’ve never seen anything like this – I’ve got a semi on Davisville sitting…..at $650K!”
The market was booming, but only in certain segments. There didn’t seem to be any method to the madness, and there was no way to predict if the $650K houses or the $2.2M houses were going to sell, or sit.
By the summer of 2012, things began to change. The market cooled, but it wasn’t so much the sell-side that was responsible; it was the buy-side.
Buyers began to say “No Thanks” to “offer dates” and attempts at soliciting multiple offers, and many buyers took the summer off to just “see what shakes out” by the Fall.
Sure enough, when the Fall came around, things really started to change. And my observations got more cynical, and I became more frustrated…
How many times did I mention those houses that were trying to “manipulate the market” by changing prices over-and-over?
Take the case of that “east end” house (God, I wish I could give you the address….) that listed at $999,000, then $949,000, then $999,000, then $879,000, then $929,000, then $949,000, then $1,099,000. Where’s the logic in that?
The final price change was the knife through the heart, however, since it showed that the seller should probably be institutionalized for extreme mental illness. To increase the price of a house that couldn’t sell at $929,000, from $949,000 to $1,099,000 is utter lunacy.
But you know what? This sort of thing happened all through the Fall market, and both the sellers AND the listing agents were to blame.
Meanwhile, back on planet earth, the sane, rational sellers who actually wanted to sell their properties and not just list them for 8 months at twelve different prices, accepted current market conditions for what they were, and acknowledged that maybe they’d get 3-5% less for their properties in October than they could have in March or April, and they moved on with their lives.
All in all, a 5-10% increase in the Spring was offset by a 4-8% decrease in the Fall, and what were we left with?
Stagnant Growth.
It’s pretty much what I predicted, although not nearly in the manner I had imagined.
So now if I may be so bold as to make another prediction for 2013, then we can really start to argue…
I think by the end of 2013, we’ll see exactly what we saw in 2012: Stagnant Growth.
I do not think the real estate market is going to implode like so many pundits, and I think by now, you all know that I’m an honest enough guy to tell you what I really think. I’m still going to work with buyers and sellers, no matter if the market is up or down, so if I foresaw a catastrophic implosion, I’d be the first to tell you about it.
I just don’t see it happening though.
I’m talking overall, however, or on average.
I think on average, the Toronto market might lose 3-4%, and might gain 3-4%, but that’s about all I see for the market as a whole.
If you want to break it down into individual segments, here is where people will really disagree.
I see the “luxury condo” market having a miserable 2013. The media caught on to the Trump Towers story in late 2012, and I don’t think anything that was written was inaccurate, or in any way unfair. I have no sympathy for speculators who borrowed from friends, or cashed in their RRSP’s so they could pay $1,800 per square foot in pre-construction for a dream in the sky, nor will I feel any remorse for laughing at people who are buying at “Cinema Tower” for $900/sqft because they think that the “investors” at “Festival Tower” did so well.
I see your “average” condo being far more insulated than the “luxury” segment, which was over-priced to begin with.
As for houses, I don’t see the family-oriented neighbourhoods losing any steam. Riverdale, Leslieville, Leaside, Davisville Village, Bloor West Village, Swansea – these are blue-chips, and if any of you are sitting out there, holding-out hope that those $800,000 houses are going to be selling for $700,000 next year, then keep dreaming.
In 2013, some areas or segments of the market might lose 10%, and others might gain 10%. But overall, I expect things to remain somewhat even.
If the luxury condo market dipped 30% (for example, if those $1900/sqft condos were suddenly “only” worth $1300/sqft), that would significantly skew the market average as a whole. I’ve seen reference to a “10-25% correction” in the media, but I reiterate that I don’t see this happening on average, but rather within individual segments and pockets. If luxury condos drop 30%, and Little Italy homes go up 5%, then the overall average will only tell part of the story.
I think depending on where you’re located, and what you’re looking for or what you own, you could be telling a very different story by year’s end than the person sitting next to you…
I welcome your predictions! 🙂
dave
at 9:15 am
As Google say, “I’m feeling lucky”, here are my predictions
All figures GTA Average Prices, adjusted for inflation
Jan 2013 YOY 2% increase
April 2013 YOY 8% decrease (ie return to April 2011 prices)
Full year 2013 6% decrease (from 2012 full year)
April 2014 15% decrease over April 2012
Joe Q.
at 9:40 am
I’m not much of a prediction guy … but I’ll take a stab at it: Through 2013 I think Toronto house prices will be more or less stagnant (a few % change either way) while Toronto condo prices will start to show double-digit year-over-year drops at some point in mid-2013. I also expect that we’ll hear more condo shenanigans in the news (lawsuits, major structural issues and assessments, etc.)
Kyle
at 11:45 am
Since there isn’t any sort of prize for this, how about some BOLD predictions:
1. By 2015 – Prices in South Mississauga and Oakville will come under pressure, and will have an inverse relationship with the amount of construction delays on the Gardiner
2. Luxury condos will tank. Toronto is still and for the foreseeable future will be a low rise city. Unlike other large expensive cities, where you only have condos or flats to choose from, In Toronto even the best locations still offer house or condo options. And the reality is other than sheiks and rock stars, the majority of people that have $1M+ to spend on a home, will spend it on a house where they don’t have to share elevators with the sub $1M riff raff.
3. In 2013 parking will be worth even more
4. In 2013: Chinatown, Don Mills, Du West (Little Portugal), India Bazaar, Bloordale, Junction Triangle and East York will outperform. You will also see a lot more tear-down and rebuilds of modern minimalist style homes in these neighbourhoods.
5. In 2013: North Toronto (if you don’t have real parking), Leaside, and Summerhill will underperform.
6. By 2016, there will be new neighbourhoods, where nothing stood before – Corktown, Portlands, Sterling Avenue, Eastern waterfront, Dupont and Lansdowne. And because these new hoods are being built where access to transportation and amenities already exists, these nieghbourhoods will be much more vibrant and successful than Liberty Village and Cityplace.
7. In 2013 and for the next 5 years: rents will rise A LOT
8. In 2013: more people will opt to renovate rather than move. Not just houses, but condos too, as transaction costs are too high. This will increase house prices over the long run, as there will be fewer listings, and far more “done” listings, when people do finally sell.
9. You will start to see more condo flips, as the resale vs new construction pricing dislocation for condos creates more opportunities to sell a “new” condo in an old building.
10. Over the next decade, people will stay in their homes longer. While interest rates are still low, people will stretch more when they buy, so that they don’t have to move again in 3-5 years.
11. Toronto will continue rising in International status as being a top choice to live.
12. Wherever the casino eventually goes, the prices around it will drop
Geoff
at 12:44 pm
By Dec 2013
YoY (so Dec 2012 vs Dec 2013) prices for condos will be down -10%
Detached houses: +2%
Semi etc: 0% change
Note: this is for 416 (or with voip murking things up, I guess I should say ‘all the places you can get on one single ttc fare’.) GTA like brampton, milton, etc could be much worse.
Appraiser
at 7:25 pm
My prediction is that the real estate bears are going to be deeply disappointed, but will keep pushing the panic button every single day regardless. It’s impossible to exaggerate just how irrational and illogical an angry renter can be.
Ralph Cramdown
at 9:18 pm
That’s the ‘Popcorn’ button. So we can enjoy this bad movie with a tub of fresh, hot, buttery popcorn from the comfort of our rented parlours. P.S. We have to go to the bank tomorrow morning to max out our tax sheltered contributions for this year, as well as cash a big pile of dividend cheques. Hope you had a great holiday, and please finish those repairs before we get back. Thanks, the ‘angry’ renters.
Appraiser
at 7:10 am
The only cheque that interestme is your rent cheque, which pays the mortgage, interest, realty taxes and the new car payment for my kid.
Oh, did I mention anything about the pride of ownership – priceless.
Signed: Happy homeowners
Geoff
at 8:40 am
You know what’s funny? Everytime a real estate ‘bear’ says something, he’s called an angry renter. Everytime a real estate ‘bull’ says something, he’s called a smug homeowner. How about we leave the names out people. I for instance am a homeowner – I bought my first condo at 26 for $150,000 in 2002, and sold it to buy my home in 2007. So I’m clearly a homeowner. But ask me if I’d pay the $700,000 I could get for my house today? Hells to the no people as I believe it’s crazy that average house prices are so far high above average incomes, and that a readjustment is due to occur – even if it’s a slow readjustment where there’s years of zero or slightly negative price appreciation. Signed, the homeowning real estate bear.
JG
at 9:02 pm
I can’t speak to specific percentages, but I do believe there will be a slight up tick in the Spring market followed by a plateau for the remainder of the year. I think this will be best case scenario.
I am really interested in seeing how the year starts to unfold and what it will start to dictate for 2014. That will be an interesting year.
If worst comes to worst, and the market is stagnate for long periods of time, you could always do like this guy does @chadrogerstv 🙂
(apparently bringing your little pup to work can double production!)
David Fleming
at 10:28 pm
@ JG
I’ve had about twenty friends ask me, “Sooooo….are you gonna start bringing your dog on listing presentations with you?”
Chad Rogers and I both have little toy dogs, but the similarities end there!
Actually, we’re both obsessive-compulsive, neat-freaks, and slight germophobes, but thank GOD I don’t have that awful monotone voice…
Potato
at 10:53 pm
Predictions, sure.
Sales and now prices are down modestly for the (416) condo market as the new year dawns. That weakening will continue into 2013, and we’ll hear metaphors like “it’s as though someone turned off the tap” in the spring. Then through the summer and fall the price declines will be less modest, and the sales volume will start to come back, partly by lapping these easier comps. By the end of the year sales should be back up to these (slightly lower than average) levels as prices ~15% lower start to bring back the buyers.
The detached market will lag, with sales still low by the end of the year and prices only down ~5-10% — I predict that it will take until 2014 before the market comes to appreciate the fact that houses and condos can’t be so easily decoupled. Same for “hot” neighbourhoods: for the first half of the year they’ll hold up better than the “boring” ones, but by the late fall/winter those differentials will fade, and we’ll find in a few years that the very hottest of the hot markets were those that collected the most gas over the last few years and will have the most to give back.
Perfect Fit
at 3:15 pm
You were a day early David. Today’s Toronto Star article: http://www.thestar.com/business/article/1311871–toronto-housing-prices-to-flatline-in-2013-report
lui
at 8:39 am
This kind of climate will weed out the bad agents out of the market which is a good thing and desirable areas will still be desirable.The cookie cutter studio and one bedroom condos will always be sought after by investors but the two bedrooms in overpriced projects will be a hard sell.Im seeing a lot of houses in average areas stay on the market for a long time which is clear indicator buyers have the slight edge these days but I also see the rare good hard lofts sell within weeks.Balance market is going to be the title of 2013 for real estate and I also see increases in rent since those sitting on the sidelines still need a place to live before they commit to a purchase of their own.