Toronto Real Estate Crash1. Realtors know that real estate is seasonal and greatly affected by the weather. And on January 12th, 2013, as weather records were shattered across Toronto and crazy Canadians took to patios, the Buyers were out in droves. There were reports of line-ups at open houses and  multiple offers. It isn’t hard to get a Canadian excited: just give us a little sunshine.

2. The Toronto Star actually published a non-doomsday real estate headline last week: “Toronto Real Estate Prices to Flatline in 2013“. Shocks were heard across Toronto.

3. Past real estate downturns have been precipitated by a trigger or event – a sharp rise in interest rates or an decrease in employment. All signs point to continued low interest rates (in fact with the US announcing they won’t increase their interest rates until unemployment drops to 6.5%, we could be in for YEARS of low interest rates). No trigger, no crash. If people don’t NEED TO SELL they won’t need to lower their prices (we covered that in an earlier blog, Sellers: Are you Willing or Desperate to Sell?) From an article in the Financial Post:

 

“The one thing missing from the market, for all those people looking for a crash, is a catalyst or an event that will force people to reduce their asking prices. Before this housing market burns up in flames, it needs some type of spark. And, if you talk to some people, that key event — two that come to mind are a spike in interest rates or job losses — is not happening any time soon.”

“Crashes don’t just happen in a vacuum, you need a trigger,” says Benjamin Tal, deputy chief economist with CIBC World Markets. “I can’t point to any crisis in the history of crashes that didn’t have a trigger.” In the United States, the trigger proved to be a sub-prime market and the expiry of teaser rates that jumped as much four percentage points on some mortgages. Overnight, people couldn’t afford their homes.”

 

4. Toronto Sellers are a stubborn bunch. “You don’t want to pay me what I want for my condo? Fine, I’ll wait. Or take it off the market and rent it out.” We’ve found ourselves in this situation at least three times in the last few weeks – Sellers refused to accept reasonable offers because those offers are slightly lower than the last sale price in their building. I suspect that a lot of the condo inventory that’s building up will soon be pulled from the market, and old supply and demand will rule again.

5. It’s still hard to find a good rental in Toronto. Our team works with rental clients too, and finding a decent one bedroom apartment in downtown Toronto isn’t easy. Investors won’t be motivated to sell their investment condos while they can generate a positive cash flow (see #3: low interest rates+low vacancy=happy landlords)

6. Macleans predicted a real estate crash on last week’s cover, and anybody who reads Macleans knows their predictions are almost always wrong. The very fact that they’re still printing their magazine on paper is kinda proof that they aren’t particularly skilled at seeing into the future. I’m sure that headline helped sell a lot of magazines though.

7. The new mortgage rules have cooled the market a bit. But in true Canadian form, many Buyers took those new mortgage restrictions as positive signs to the long-term viability of our housing market. With less fear about an out-of-control market (and the hope of getting a ‘deal’), Buyers who will still qualify have forged ahead. And the ones who no longer qualify for a mortgage? Well they probably shouldn’t have been buying anyhow.

 

Will we see a big increase in prices in 2013? I don’t think so. I think the market will be more balanced, with the number of Buyers being more equal to the number of Sellers. I think prices in Toronto will generally stay the same (or increase slightly for houses and decrease slightly for condos). I think investors will continue to be happy with the returns they are getting on their rental properties. I actually suspect 2013 will be quite a boring year in Toronto real estate.

So should you sell? Should you buy? Make sure to read our earlier blog Should I Sell My Investment Condo? and stay tuned for our upcoming blog: Is Now a Good Time to Buy?

  1. Frank le skank says:

    1. How do you explain all the decreases in sales measured on a year to year basis since May of 2012? If the spring market has a 30% decrease in sales will still claim that its seasonal?
    2. Not sure what your point is on this one.
    3. Provide proof of past downturns and what the triggers were? If you want to use that logic lets just say the killing of the 0 down, decrease in amoritization to 25 years and no CMHC for houses over 1 million are the triggers. In all honest the trigger is greed an ignorance.
    4. I agree with you but at some point there will be a point where panic will set in and stubborness will be pushed aside.
    5. When was the last time you rented a place in TO? I’ve been a renter for 13 years and never had a hard time finding a place. In fact, I’ve had a hard time choosing between a multitude of places.
    6. Schoolyard tactics of poking fun at a Magazine is not factual proof of what you are claiming.
    7.This “sign” is pure speculation on your part. How do you know that’s how people feel?

    It takes time for these mortgages rules and public sentiment to change, its not a knee jerk reaction. There is simply no trigger required, springtime will show you this.

    • 1. Umm, no. If there’s a 30% decrease in sales than that would be a 30% decrease in sales.
      2. It was an attempt at humour. Sorry you didn’t find it funny.
      3. Click on the links in this point – they reference the triggers of previous downturns: double digit interest rates in the late ’80’s, the sub-prime mortgage crisis in the US and the recession of 2008 were previous triggers.
      4. Let’s hope not! Panic is never a good reason for the economy to move in any direction.
      5. Just last week I helped a renter – we help people find rentals every month actually. Vacancy is at an all-time low of 1.7% and bidding wars are fairly common for rentals in the downtown core. We listed 2 apartments for rent a few months ago ($2,400 and $2,900) and had over 100 people try to rent it and they all told us how hard it was to rent in Toronto.
      6. Guilty as charged. But for the record, that’s my paper copy of the magazine.
      7. This is a BLOG, so of course it’s my opinion. And I talk to people considering buying in Toronto every day.

  2. Frank le skank says:

    I would like to conclude by saying that I believe the spring market will be very interesting. I believe a lot of economist and RE peronalities are over optimistic with their predictions. When you look at the fundamentals that support the RE industry, the numbers just don’t add up. The massive increases in house prices over the last decade have far outpaced wages. That’s just one example, there are many more variables and I’ve never heard a rebutle from anyone to explain how this is sustainable. When you look at the decrease in sales since May 2012, you can hope that everyone is waiting for spring 2013 to buy, but I don’t understand that logic. Its the beginning of a correction that will shock a lot of people who’s blind faith will come to haunt them. First sales drop, then prices follow, the question is how severe will the correction be? Will it be a soft landing? No. Will it be a small correction? No. Will it bring prices back to a level that is affordable for the average person and normal interest rates? Yes Thanks for your respectful response to my post.

Comment

Your email address will not be published. Required fields are marked *