Remember when you could buy a great house in Leslieville for $700,000? Or when getting into Roncesvalles didn’t mean parting with over $1,000,000? It wasn’t that long ago.
Rapid price increases in a particular neighbourhood or street can be traced to that good old economic principle of Supply and Demand. When there are too many people (demand) chasing too few houses (supply), prices increase. And sometimes, that can happen really fast.
What makes a neighbourhood suddenly become popular? It could be a lot of things. A public school suddenly ranks at the top of the Frasier Institute’s rankings. A new transit line is announced. Restaurants and shops creep into an area that was previously dull. Toronto Life declares a neighbourhood in their Top 10 list.
Usually, it starts with the sale of one house (or condo) that sells for a whole lot more than expected and that gets everybody excited. We see this happen a lot during the busy real estate seasons of spring (Feb/March) and fall (Sept/Oct). And suddenly, everybody wants in.
If you’re lucky enough to live in a neighbourhood where new benchmark prices are being set, you probably already know it. Your neighbours are talking about that house that sold for $200K more than asking and $75K more than the last house; REALTORS are probably filling your mailbox with even more flyers than usual.
Here’s what you need to know about benchmark prices:
1 – When valuing houses, appraisers and real estate agents look at the most recent sales to get an understanding of the demand and prices in the immediate market. In a market that moves as fast as Toronto’s, that may involve looking at the last 3 or 6 months of sales – so every sale is important.
2 – When a high sale happens on a street or in a condo building, it’s not unusual for other Sellers to decide to sell too. “I can get how much for my house? Let’s sell it!” When that happens, one high sale can lead to another and another, thus creating a new benchmark price for the street or building.
2- Keep in mind that true benchmark prices are set by multiple sales that deviate from the norm, thus setting a new norm. Just because one house sells significantly higher (or lower) than usual, a new benchmark hasn’t necessarily been set. There may have been extenuating circumstances and that sale might be considered an outlier. But if multiple Buyers buy multiple houses on a street, in a building or in a neighbourhood at inflated prices, boom! You’ve got a new benchmark.
3 – If you own a home in an area that’s suddenly become more in demand, that’s great news for you! If you were thinking of moving, now might be an excellent time to list your property for sale.
4 – Buyers: do your due diligence. A sudden increase in listings on a street or in a condo building might not be in response to a sudden increase in demand or prices. If 10 lofts suddenly become available in a building that rarely has supply, it might be because a new construction project has been announced that will eliminate those lake views.
Do you live in an area where new benchmark prices are being set? We love talking about Toronto’s real estate market and are always happy to help homeowners understand what’s going on in their neighbourhoods and how that impacts the value of their home. And if you want to help lead the way in setting a benchmark price on your street, well we love that challenge too. Don’t be afraid to get in touch!