Oh boy. Here we go again!
My “predictions” blog post for the fall of 2016 set a TRB-record with 202 posted comments, and the debate was fierce.
Will the 2018 predictions be any different?
As I remain exceptionally bullish for the Toronto market both long-term and medium-term, I think it follows that my short-term outlook has to be partially bullish as well.
Let’s look at some of the top stories that lay ahead for 2018, and my predictions for the market…
The Christmas holidays are a strange time for me.
I basically work non-stop from January 2nd until the end of June, and spend the summer working, save for Canada Day weekend at a cottage and two weeks in Idaho before the market ramps back up again after Labour Day.
Real estate is a fast-paced, dynamic industry, and those who don’t live and breathe real estate, don’t really work in the business.
When Christmas rolls around, I honestly don’t know what to do with myself.
Maybe that’s why I’m sitting in the office on December 29th, with my dog, Bella, staring at me from the corner of my desk, as I write a blog for January of 2018.
I loved spending time with my family over the holidays. My brother and his family were in from London, England, and as we only see them at Christmas and in the summer, every moment with them was extra-special.
I feel like I really bonded with my daughter, Maya, more than I ever have before through her 13 months in this world. I spent so much time with her over the holidays – full days! Something I had never done before, save for August’s vacation in Idaho.
Have you ever heard my all-time favourite comedian, David Cross, talk about his friends with babies?
He maintains that every person in the world without a child always says, “I’m not going to be ‘that guy’ when I have a baby, you know? Like become ‘those people with kids’ and all that, I won’t change.”
Then once they have their first-born, they regale you with long-winded, boring stories of every piece of minutiae about their kids: “David, oh boy, you wouldn’t believe my little guy, yesterday he was just staring at this grape….”
I’ve officially joined the club.
I can’t tell you how many stories I want to regale you with about my daughter, that mean everything in the world to me, and absolutely nothing to you.
For example, she loves anything “fluffy,” and she loves to rub it against her nose and lips. So she’ll pull the tiniest pieces of fabric off her blanket, and then hold this invisible thread between her thumb and forefinger and calmly run it back and forth under her nose for an entire half-hour car-ride.
Like I said – I’ve officially joined the club. And I have a hundred more stories, just like this one.
And in the midst of all of the incredible family-time over the holidays, part of me is longing to go back to work. I’m sure there are many other people, in many other industries, who feel just like I do. But I can’t help but think that so many folks with this passion (sickness?) work in the wonderful world of real estate.
So what’s in store for the Toronto real estate market in 2018?
Well as you might have assumed, I have a thought or two I’d like to share.
First, however, let me provide you with a few “predictions” from economists, banks, and other noted pundits.
RBC Economics predicted that Canada-wide average home prices would increase 2.2% in 2018.
PWC Canada didn’t provide a specific figure on appreciation, but did offer this:
Prospective homeowners may disagree, but industry players don’t feel Toronto is too expensive—certainly not in comparison to current world-class markets, including Vancouver. Most foresee continued immigration and investment, foreign and domestic, contributing to upward pressure on prices overall. And while there may be temporary price dips, no one should expect a major pullback on prices—barring an unexpected event that upsets the global economy or a major change in government policy.
Royal LePage CEO, Phil Soper, predicts that the Canada-wide home price will increase by 4.9% in 2018, and in Toronto, that number is even higher at 6.8%.
I know, I know – you laugh at the idea of the CEO of a real estate brokerage providing a bullish outlook on the market.
This Globe & Mail article says “a poll of Reuters analysts” expects the Canada-wide price to increase by 1.9% in 2018.
I’m not searching for only bullish forecasts. I Googled, and these were the results. And ironically, the only bearish forecast I found in my quick search was from a source you wouldn’t expect.
The Canadian Real Estate Association itself predicted that prices in Canada will drop 1.4% in 2018, and drop 2.2% in Ontario specifically.
There are no shortage of predictions out there, both bullish and bearish. I’m finding more bullish ones, but please – if you have an outlook from one of the Big-5 banks, please post in the comments below.
So now allow me to provide my predictions, on some of the biggest topics affecting real estate in Toronto, and then you can pick them apart to your heart’s delight.
1) The average home price will increase in Toronto, in 2018.
Why not start with a bang, right?
This is what everybody wants to talk about, and it’s really the only number we see thrown around in the media and among experts and prognosticators. Well, to be honest, sales data is thrown around a lot, but I feel that’s only used to prove a point about the market, whether one wants to show the market in a positive or negative light, when the price data isn’t telling the ‘right’ story.
For the rest of us, we don’t care about how many people are buying, but rather what they’re paying and how that affects us.
So before we begin the discussion, perhaps a refresher is necessary.
As I write this, I don’t have the ‘final’ 2017 average home price (ie. sale) from TREB, and for fear of waiting until Friday the 5th, or Monday the 8th, I figured I would use the year-to-date figure from November as a place-holder.
Keep in mind – that “year-to-date” number encompasses all sales from January 1st to November 30th; that’s 87,513 sales. So tack on, say, another 5,000 in December, and I don’t expect the needle to move that much.
For example, the November 2016 YTD figure was $729,849, and the full 2016 figure at year’s end was $729,837.
So I think for our purposes, we can use the November 2017 YTD number in the context of where the market has been in the past three decades.
This is the chart I used in my first blog post of 2017, so let’s update it with one more line of text and take a look:
So the first thing you’ll notice is that the average home price, or sale price, in 2017 shows $827,608, and yet the November number was only $761,757, down from $780,000 and change in October.
You might cry, “This is misleading, since the chart shows this whopping 13.4% increase, but home prices aren’t averaging $827,608 – they’re down in the mid-to-high $700’s.”
The latter part of that is true; prices aren’t up over $800,000, currently, based on the past month.
But keep in mind, that these numbers represent the average sale through the year. So when the average sale was up to $920,000 in April of 2017, this is being incorporated into the full calendar-year average.
So a 13.4% increase in 2017, after a whopping 17.3% increase in 2016. And I have the audacity to suggest that we’ll see an increase yet again?
And I’m up against a monster here, when you think about it.
The average home price in November of 2017 was $761,757. For me to say, “The average home price in 2018 will increase…….above the final number from December of 2017,” would be a slam-dunk, no?
I ask of ye bears, answer me this: do you think that the average yearly home price in 2018 could be below the monthly home price for November or December of 2017, ie. that of some $760,000’ish? Surely even the most bearish folks can’t predict that with a straight face, given the “hot pockets” of April, May, and June, not to mention September, will inflate that figure.
But the slam-dunk aside, I’m going to take it a step further, and shoot well outside the paint, and perhaps even into 3-point territory here.
I do believe that upon the completion of 2018, the average home price (I keep saying “home price” but we’re really talking about the sale price) for the year will be higher than the $827,608’ish figure that we’ll see for 2017.
The “monster” I spoke of above refers to the fact that within that $827,608’ish number lays those huge averages from March and April that were $916,567 and $920,791 respectively. So in theory, we’d have to see two months above those numbers, in 2018, to beat the year-end average.
In theory, perhaps.
But in practice, I see a much smoother ride for the 2018 market, with far less volatility, and a more typical “trajectory,” if you will.
In most years, the market begins slow in January, ramps up through March, and we see a frenzy in April, May, and June, before a calmer summer.
In 2017, the market started hot right out of the gates, and with a 50% decrease in listings, plus more buyers out there (sales were 12% higher, despite the 50% drop in listings), the result was the dramatic increase in prices on a monthly basis (see the chart in prediction #2 for reference).
By the time April rolled around, combining general buyer fatigue with the Liberal government’s “Fair Housing Plan,” we saw a dramatic drop in both sales, as well as average sale price.
The summer was an absolute dead zone.
And while the September average freehold price rallied 11% over that of August (also in chart below in prediction #2), it wasn’t a strong enough fall market to get us back to where we were in the spring.
So what do I expect to be different in 2018?
Everything. Basically, the opposite of all those points above.
I expect the market to start slow, unlike in 2017 (more on this in prediction #4 below), as buyers “adjust” to new mortgage rules (more on this in prediction #3 below, as you see everything is somewhat intertwined).
Personally, I think January and February are going to be great months to buy, as I expect things to ramp up in the spring.
In previous years, the slow January and February months led to four extremely busy months in March, April, May, and June, and that’s how I see this year shaping up.
The big difference in 2018, however, is that we won’t have the market stop-on-a-dime as it did in 2017, with the “Fair Housing Plan” announcement. I mentioned above that I think “buyer fatigue” had set in, and I do believe that even without the FHP being introduced, I think the market would have cooled off. But to the same extent? Not a chance.
As I’ve written before in multiple blogs, I dont’ think the FHP itself had any tangible effect on the market (save for rentals), but rather the general “idea” of the Fair Housing Plan did.
Preceeding the FHP, of course, was the “Toronto Housing Summit,” which just based on the way the government was speaking, and the media was reporting, made it sound like the government was about to do something drastic.
Along with the “idea” of government intervention, comes the imagery.
And this classc photo of Charles Sousa, John Tory, and Bill Morneau – three men who were about to “enact change,” was almost set up to mimic Woodrow Wilson, Lloyd George, and Georges Clemenceau…
Hyperbole on my part, I know.
But as the media continued to report, and photos like the one above began to surface, the public took notice. And why wouldn’t they? Real estate has always been an incredibly hot topic, if not the hottest, over the last few years. All this talk of a “real estate summit” was bound to be seen and heard.
In the end, it scared the crap out of people.
Throw in Kathleen Wynne, standing in front of a giant poster, talking about how “unfair” the real estate market is, and how the Liberal government is going to change all that, and as we know, the market came to a screetching halt in April.
Governments can, and have demonstrated that they will, enact policies to effect change, no matter the need, the level of support, the results, and/or the unintended consequences. And I believe that with talk about a “Housing Summit” preceding a Liberal government, capable of anything, standing in front of a podium talking about “Change” like Obama in 2008, many existing buyers were petrified with fear.
As I’ll explain in prediction #6, I think we’ve heard the last from the government as it pertains to the real estate market, at least for a while.
And without a massive knife to the fish-guts of the market like we saw last April, I see the Toronto market starting 2018 steady-as-she-goes, and gaining momentum, ever-so-slowly, through the end of the year.
Say goodbye to the volatility, hyperactivity, and hyper-appreciation of 2017.
But you won’t be saying goodbye to the price points…
2) The freehold market will outpace the condo market.
An absolutely crazy thing happened in the 2017 real estate market.
No – I’m not referring to the 26.1% increase in the average home price from December of 2016 to April of 2017.
No – I’m not referring to the subsequent 18.4% decrease in the average home price from April to November.
I’m referring to the idea that the condo market outpaced the freehold market, across the board, in every category.
In my year-end blog post, somebody asked me facetiously, “When are you going to buy a house?” Another reader said I should put my money where my mouth is.
I tell every single buyer that I interact with, “A house will out-appreciate a condo, no question about it.” It’s then up to the buyer to decide if he or she can afford a house, otherwise, there’s really no decision to be made.
I live in a condo, in part, because as an occupational hazard, it’s nearly impossible for me to find the “perfect house.” But I also live in a condo because I work an obscene amount of hours, and I simply don’t have time for the upkeep on a house, as much as I would have loved to live in one over the past few years.
But ask me what is a better investment, a house or a condo, and I’ll tell you honestly, that while my condo has appreciated nicely since I purchased it, all of my friends, to whom I sold houses around the same time, are laughing all the way to the bank.
So having said all this, I suppose now is the part where I go back to the point above – that in 2017, condos actually out-appreciated houses.
And nobody, and I mean nobody, saw this coming.
Like me, most people assume that houses will always out-appreciate condos. How can they not? There are thousands of new condominium units completed in the central core each and every year, but save for the rare occasion when a large bungalow is torn down, the lot is sub-divided, and two houses are built where one house once stood, we’re really not building any more houses!
More people want to own houses than condos, and if prices were equal, there’s no question that just about everybody would choose a house.
So it’s altogether shocking that the condo market performed the way it did in 2017.
Take a look at the chart below, which shows you the average sale price for both freehold in Toronto (416) each month in 2017, as well as for condos (also 416).
And for those of you wondering where I got the freehold numbers, since strangely, TREB’s Market Watch doesn’t provide these (are you listening, Jason Mercer?), I devoted an hour to inputting all the freehold numbers for each month, and taking a weighted average based on the number of each detached, semi-detached, and townhouse. Email me if you’re interested in the calculations.
The average sale price for freehold finished the year (November) only up 1.6%, since December of 2016, but condos were up 19.0%.
The condo market just seemed to be a bit less volatile, and the gains were steady.
Note that in February, when the average freehold price increased 18.2% from January, the average condo price only increased 9.3%. This made it a lot easier for the condo market to continue on a “slow and steady” pace.
We could spend all day on this chart (which would be nice, since I spent an hour on it…), but we must move on.
Bottom line: what happened in 2017 was an abberation. For the average condo price in Toronto (416) to increase 19.0%, and the average freehold price to increase 1.6%, simply shows me that it’s absolutely, positively, impossible for this to happen again.
You might even argue that as a result of 2017, freehold prices, where they are right now, are actually quite reasonable.
I certainly didn’t mean for this to turn into a 2-part blog post, but I have about 5-6 other points I want to make, and I think I’ll lose some of the skimmers here if I keep going.
Let’s adjourn until Thursday!