1. 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 a 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?