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Opinion: It’s time to separate fact from fiction in Toronto’s housing market

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Opinion: It’s time to separate fact from fiction in Toronto’s housing market

Excerpt: Realtors are having tough conversations with their clients; the past decade has unfortunately conditioned some that home prices only go up

We’re having tough conversations with our clients about the value of their recently purchased homes. They’re not comfortable conversations. Many are worried. So how can we, as their realtors, help ease their concerns?  

It certainly doesn’t help if you follow any of the drama-loving content creators on your favourite social media app who just love to amplify bad news. 

Now, I know some are thinking, “But wait, my client’s house has lost 10 per cent of its value! How can this be normal?!” Look, nothing is exciting about an investment losing its value in the short term. It sucks. But the past decade has unfortunately conditioned Toronto property investors that prices go up (and only up) with no ceiling. 

Having a property sell in two days with five bully offers for $100,000 more than the previous comparable from a week ago is not normal. 

 

What is normal?

 

As things started to slow down, some buyers and sellers were caught in messy situations. Appraisals not working out, long closings affecting affordability, and so on. Those are the stories that got airtime.

But in reality, most of the market homes were selling for what they were listed for or slightly less, and in a reasonable amount of time (30 days or fewer). That sounds like balance to me.

But, some popular publications and social creators continued to lean in on this Chicken Little “the sky is falling” narrative. They got a LOT of airtime.

Unique, one-off situations made headlines and painted the entire market with the same negative brush in the name of “truth-telling.” Often even misrepresenting scenarios by not asking enough questions and only telling half the story. 

While all this was happening, buyers kept buying, and sellers kept selling. Opportunistic investors were scooping up deals left, right and centre. 

The majority of existing owners didn’t panic and sell. They knew better (well, most of them did anyway). Anyone who didn’t need to sell didn’t. 

Sellers remained calm, which severely limited supply. You’ll know what I’m saying if you’re working with any active buyers; it has not been easy to find them their dream home.

Once there is a slight shift in buyer sentiment, we’re right back in an aggressive seller’s market. 

 

The rise of inflation

 

While the market was on the upswing, “advocates” called for political intervention in the name of affordability. Stricter mortgage rules were put in place, and the market kept going. But inflation had different plans for us.

In the beginning, I, along with many others, thought inflation was transitory. I told myself and my clients not to worry, and once supply chains were restored after pandemic restrictions were lifted globally, things would get back to normal. 

It turns out that wasn’t the case. That’s when I started to become much more globally aware. To understand our micro-markets, it’s important first to understand macroeconomics. Global activities can affect the prices of goods and services right here in Toronto. 

That’s when my crystal ball began to get clearer. 

Prices don’t just come down because they’re too high; it’s a combination of factors. You’ve got stricter mortgage lending rules, (much) higher interest rates and an overall cooling of buyer sentiment. 

Let’s remember the pandemic, which has caused many people to reassess their housing needs and make rash, FOMO-fueled buying and selling decisions. 

 

Opportunities in the market

 

But here’s the thing, this correction has created opportunities in the market. Ok, well, more so for buyers than sellers, but it has created an arbitrage opportunity for an upsizer. 

If prices in my market are down, say, 10 per cent, I can sell my $900,000 condo for a $90,000 discount now and buy that $1.5 to $2 million house at a 10 per cent discount saving between $150,000 and $200,000. 

Your cost to carry that asset is similar due to the higher borrowing costs today, but that is variable and will come down. Once the value of the property increases in the next upswing, you can access multiple six figures to finance a variety of opportunities. 

The sky’s the limit if you keep your eye on the long-term benefits of ownership. Day trading real estate is impossible.

 

The bottom is in

 

In my opinion, the bottom of the market is behind us. The good news? The most recent rate hike from the Bank of Canada announcement has our phones ringing, with buyers ready to get back into the mix. There’s a chance that the January hike was the last one. 

The second we’re sure the rate hikes are over, buyers will return. Prices will start to creep up, and competition will be the norm again. We already see that happening in some cases with multiple offers and big over-asking weekly sales. 

Toronto continues to attract people, businesses and talent and is home to one of the world’s most diverse populations. Plus, it has a thriving arts, academic, film and culture scene. 

The only risk to the market and consumer sentiment is the constant out-of-context clickbait misinformation that’s circulating social media and the internet. 

It’s like navigating a minefield of bad advice and unverified information. Social media and online forums are full of it and create confusion and anxiety among buyers and sellers. 

Encourage your clients to buy with a long-term vision, drop the day-trader mentality, and conquer. 


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