This is the first time since 2008 that there was a drop in average price for the Toronto market.  It’s an exciting and terrifying opportunity as this is the time when buyers either will choose not to act or act and make the most money on their real estate purchases.  I still talk to my clients that made purchases in the small slump of 2008 who thank me for helping them through to making the purchase as they saved so much money by purchasing when everyone else was holding off.

Let me explain…

There are two main emotions that run a market.  Greed and Fear… Greed to get/make more or fear to avoid loosing what we have… This is very much true for real estate too…  Sellers want to net the most money possible while buyers want to pay the least amount.

In a market run by greed, the fear of loosing out drives a lot of decisions.

Imagine, if you will, a market running on greed, the buyers keep paying higher and higher amounts because they see it as a profitable prospectus with little downside.  Buyers keep paying more and more because they don’t want to miss out on making money on the product (real estate) when they will sell/flip it.  Buyers want to desperately enter the market but there aren’t enough products available as sellers are also holding off on selling their property as prices keep going up.  This greed and need for housing fuels the market and pushes the value even further up.  Greed is high and fear of loosing money is low so there is lots of confidence in the market and prices keeps climbing to new records.

Now, let’s introduce the provincial liberal government who in an effort to get some votes in the next election, pander to the tenants in the city, and introduce laws for rent control and taxes for non-residents.  The news of Home Trust Mortgages failing creates a market of uncertainty and buyers suddenly start to pull back.

This pull back is evident from the market report issued by Toronto Real Estate last month that showed overall year over year number of transactions down by 20.3% and number of days up from 11 to 15 days.  There are also a lot more listings available in the market right now too.  Last month we saw 25,837 new listings enter the market as compared to 17,356 from 2016.  The prices were still shown as up 14.9% to $863,910 compared to 752,100 from 2016 but down from April 2017‘s record setting $920,791.

What does this all mean?

Number of transactions are dropping… Prices have dropped and are expected to drop further…

Let’s take a look at what prompted this change… Here are the factors that are at play here…

When looking at the market today, there isn’t much that has changed in the fundamentals.  One of the big reason prices were being driven up is immigration as we don’t have enough homes being built to sustain the incoming population and this still holds true.  The non-resident tax and paper flipping restrictions introduced are designed to primarily impact pre-construction market tax evasion as there aren’t many international buyers, that I know, looking to invest their money in resale market and deal with tenants.  The Home Trust meltdown had a market exposure of under 2% across Canada which is hardly a trickle for the Toronto market… So why did the prices pull back?

Market perception:  Perception is reality!

We saw the early signs of market slow down back in April in the weeks leading up to the Liberal announcement to help Toronto Real Estate cool down.  There are different ways I keep track of market activity… Showings on listings is the main one we use as it gives us a live feed into what the buyers are doing in the market.  We definitely saw a slow down in our showings and even postponed listing properties in April as not many buyers would come to see them.

Another vehicle I use is my online advertising metrics:  The effectiveness of an advert is measured by how many times it’s exposed to the public before a request is made by a prospect/buyer for more information.  In March, one of our advert was getting an inquiry after 240 impressions and we saw that number jumped up to 473 impressions per inquiry in April, back to 224 in May and is now sitting at 1753 impressions per inquiry.  This shows how buyers who are looking for properties are reacting to market perceptions.  It’s worth noting that the numbers are from two different adverts; both were for income properties for sale, one in Cabbagetown (Ask $2.2M – March and April numbers) and second an income property for sale in Annex (Ask $3.4M – April, May and June numbers).

Buying a property was getting more and more expensive each day hence buyers were opting to rent more which is why our vacancy rate in the city is below 1%.  There is some pent up demand among the renters which is waiting for property prices to drop so they can jump into the market as well.  There are also buyers that can purchase now who are holding back as they aren’t sure what will happen to the market.

The big question now is… where will the market go from here?  Is it going down further or will it bounce back?

I don’t know the right answer as I’m just a student of Real Estate in Toronto but do believe in the following…

• I do know that based on the fundamentals that I have studied, there is nothing wrong with the market… The prices are inflated… yes! which is a result of low supply and high demand.  With increasing supply, we will see a drop in pricing as sellers will be forced to become more competitive.
• I also know that there will be more buyers entering the market place who have been renting and waiting for this as the prices come down.  Buyers have, after a long time, choice of properties to pick from and are able to negotiate with seller.  This may take sometime as buyers will fear that the market will go down further and will keep holding off.

In my humble opinion, I don’t think we are going to see massive price drops in the Toronto market.  I believe that we will see a price drop in the next coming months and sellers who aren’t willing to sell at a lower price will start taking their properties off the market and renting them (remember we have a really low vacancy rate).  This may again create an environment where supply will be limited and demand will start to increase causing prices to start going back up.  Conversely, we might start to see a very balanced market where prices will drop over the next six to eighteen months (based on articles I’ve read) and we will have a market with average days on market close to 25 and about 2 months of inventory.

So… What to do in this market?

It goes without saying; find yourself a real estate professional who knows how to deal with this shifting market.  Due to low barriers to entry in real estate sales, the number of agents have swelled in Toronto and everyone has a friend who is an agent.  It’s important that you find an agent that does this full time and has proven record showing that he can get the property sold or negotiate well on your behalf to get you the best price possible.

If you are a seller and have a property coming for sale soon, you will need to review your expectations from the sale.  If you have your next property purchased already, double check your numbers and review the details thoroughly.  What will you net from the sale if you don’t get the number you have?  What’s the least amount of money you need to close your next home?  You will probably have to bring your property to the market a lot sooner than you were anticipating.  If you haven’t purchased yet, wait till you have your property sold before signing any agreements of purchase.  If you haven’t gotten an evaluation of your current property, you should get one as soon as possible.  This is a solicitation to help you; only if you’re not under an agency agreement.

As a seller, if you have to sell in the near future…

• Don’t expect to see offers lined up right after listing your property for sale.  Don’t set offer dates for your listings rather list at a competitive price and leave offers open at anytime.
• Don’t expect to get that crazy number you had in mind.  With more listings available for buyers, chances of crazy offers are low unless you have a very rare house, listed at a VERY discounted price, is immaculate and highly desirable, and you find two buyers that are just in love with the place…  Chances of this happening are low…
• Expect to do some work on your home before selling it.  Properties aren’t only judged based on price, rather also on how they look and any work that needs to be done.  Everything that needs to be fixed becomes a $10,000 problem.  If you have a property that is a fixer upper, chances are that you will have to get that work done to make it attractive to buyers coming through.
• Expect that buyers will be buying properties on conditional offers which means your property will likely be inspected.

Be bold when everyone is scared

As a buyer, it’s simple but not very easy…  You have to be bold when others are scared.

I sold my private residence earlier this year as I truly believed this was coming.  I’ve been keeping tabs on the market and touring properties over the past couple of months and am now making offers on properties at prices that listing agents would’ve laughed at before.  No… these are not low ball offers by any means but full asking price offers on their listings that didn’t get offers on offer night.  I’m hoping to secure a home for my family this weekend.

The idea is to get out there and start looking now!  There might be a very small window for buyers to take advantage of this market.  If you have a home to sell, I would highly recommend selling it first before buying your next place.

Following are some videos that show the details of what’s happening in the market that will help you get more detailed information on the market.  If you want to talk about this market, you can always reach out to me

TORONTO REAL ESTATE APRIL UPDATE

CLICK TO READ THE REPORT  Market Watch – April 2017

TORONTO REAL ESTATE MAY 2017 UPDATE

CLICK TO READ THE REPORT – Market Watch – May 2017

CANADIAN REAL ESTATE MAY 2017 UPDATE