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When the Ontario government’s Fair Housing Plan was announced at the end of April, there was much speculation as to what it would mean for the Toronto real estate market. Today (May 17, 2017), we’re going to look at what’s happened since and what it means for Toronto Buyers and Sellers. Get ready; it may not be what you expect.
Data, Facts and Boring Stuff
There’s no doubt that we are in the midst of a shifting real estate market in Toronto. Here’s what’s been happening:
Mid-April: As news of the impending government changes began to leak in early April, Toronto Buyers, already fatigued from months of bidding wars, began to slow their property searches. Sellers, increasingly nervous about how a foreign tax might affect prices hastened to list their homes for sale. According to the Toronto Real Estate Board, there were 33% more properties listed for sale in April 2017 than in April 2016. After a long winter of fierce bidding wars and unsustainable price increases, the increased inventory was long overdue.
April 20, 2017: Ontario announces the Fair Housing Plan, with 16 changes aimed at cooling Toronto’s hot market. You can read about the changes here. While the most significant changes primarily targeted foreign buyers and investor-landlords, many people (us included) didn’t think the changes themselves would have much of a direct impact on the real estate market.
Reality Check: When governments make changes to influence free market activity, it doesn’t really matter WHAT THOSE CHANGES ARE; what matters is WHAT PEOPLE THINK THOSE CHANGES MEAN. So while rational analysis might predict that a foreign Buyer tax should only affect a tiny portion of the market, if Toronto Buyers and Sellers think it might affect them and change their behaviours, a far more significant market change can occur. Witness what happened in Vancouver last year when sales dropped 45% after the Foreign Buyer’s Tax was announced – foreign buyers did not make up 45% of the market, but Vancouverties reacted emotionally, and the market slowed.
April 20 – May 1: As busy REALTORS, we have a bird’s eye view of what’s happening in the market, as it happens. After the Fair Housing Plan was announced, we saw mindset and behaviour change almost instantly. Buyers who’d previously been dedicated house hunters decided to take ‘a week off and see what happens’. Sellers who’d been debating listing their homes for sale in the spring/summer/fall, were suddenly all very anxious to get their homes on the market.
May 1(ish) – Today: Things started to feel really different at the beginning of May. Houses listed for sale were getting fewer showings. Houses in hot neighbourhoods that would normally have seen 5-6 showings per day were getting 1-2 showings per day. Some great houses were being overlooked by Buyers. The 10-person bidding war became an increasingly rare occurrence. The common pricing strategy of setting an arbitrarily low asking price and not looking at offers for 6 or 7 days in the hopes of generating a bidding war started to fail – no one was showing up on offer night! The condo market – on fire since late last year – also started showing signs of change: while demand was still strong, there were more properties to choose from and fewer Buyers competing for properties. The irrationality of an emotion-driven bidding war market made way for a more rational approach to buying.
It’s normal at this time of year to see more listings…this is the ‘spring market’, Toronto’s busiest real estate season. But it really felt like there were WAY more properties for sale. So I decided to so some math.
I pulled the stats for central Toronto for May 1-May 14…essentially the Beaches to High Park. In MLS-speak, that’s TREB districts C1, C8, E1, E2, W1, and W2. I wanted to compare activity in 2017 to 2016 to see exactly what was happening. In short:
What’s Happening with Houses
- New listings increased 58% (in real numbers: that’s 405 new home listings during that period in 2017 vs 260 in 2016)
- Sales decreased 17%
- Months of inventory increased from 1.6 months to 2.3 months – meaning it would take us 2.3 months to sell all the listings currently available for sale (at the rate of sales during that 2- week period) if nothing new was listed
What’s Happening with Condos
- 13% increase in listings
- 18% decrease in sales
- Months of inventory increased slightly up from 1.6 months to 1.7 months
Caveats and small-print: 2 weeks is an extremely small time period to look at, and central Toronto is a limited sample size. The market and stats are also impacted by where weekends fell during that 2-week period, the weather and what else happened in the world. Nonetheless, these stats reflect what we were feeling and seeing.
What It Means for Buyers
The current situation represents a HUGE opportunity for Buyers. There’s more inventory than we’ve seen in a really long time and it’s possible to buy a house or condo without having to claw your way through a bidding war. There are even opportunities to – wait for it – NEGOTIATE! Here’s our best advice for Buyers today:
- Don’t assume this will last. In the past, when the Toronto market has slowed down, Sellers responded by taking their properties off the market…which resulted in less supply and a relatively quick return to bidding wars and price increases. If you’ve been unsuccessfully competing for houses or condos for the past few months, this might just be the break you’ve been waiting for. Remember my example above about Vancouver? Within 6 months, sales and activity had basically returned to normal….and price increases continue (though at a slower pace than before).
- We’re still in a Seller’s market – so don’t get cocky. With 2.3 months of inventory on the market, we’re still firmly in a Seller’s market, and the Sellers are still in charge. We won’t be in a Buyer’s market until we see 4-5 months of inventory (meaning it would take 4-5 months to sell all the properties listed for sale) – we’re a long way from that. Most Toronto Sellers aren’t desperate, and your low-ball offers aren’t probably going to get you any further than bidding the asking price in a 10-person bidding war did in February.
- Remember why you’re buying. Nobody can effectively time the market – we don’t know we’ve reached the top until we’re already on the decline, and we don’t know we’ve reached the bottom until things have started to climb. We’ve been fortunate in Toronto that our homes have become investments…but your home should primarily be, first and foremost, for life. It’s where you celebrate with friends and family, raise kids and make memories.
- Buy and sell in the same market. As the market re-balances, the best thing you can do is to be a Buyer and a Seller at the same time…if prices are up, you’ll benefit on the sale side and pay on the buy side. If prices are down, you’ll benefit on the buy side and pay on the sale side. The key is making your moves at the same time.
- Your agent matters. Work with an agent who understands what’s happening right now and can guide you into making the right decisions, without pressure. There are some real opportunities out there right now- opportunities to get into a neighbourhood you might not have been able to afford just a few months ago, and opportunities to negotiate. Choose to work with someone who genuinely cares about you.
What it Means for Sellers
I know, this isn’t a fun time to be a Seller. You’ve watched the market on fire for months now and listened to your neighbours’ tales of the 20-person bidding war and getting $500,000 over-asking. That probably isn’t going to happen much anymore….but guess what? You’ll still benefit from their bidding war. Here’s our best advice for Sellers today:
- It couldn’t last. It’s important to recognize that in the first three months of 2017, Toronto underwent incredible price gains – what some would say is equivalent to 1 or 2 years of price appreciation. A 33% increase in prices in one year wasn’t sustainable. The good news is that we haven’t seen prices fall, which means you’re still getting the benefit of that crazy activity in the price you’ll sell your home for- you just won’t necessarily see 20 people competing for your house or have to deal with the circus.
- Now is not the time to get greedy. If you sell your house for the same price as the one that sold two months ago down the street, that’s still an incredible price. Things can’t keep going up forever. If you bought a detached home five years ago, it has increased in value by 89%. An $831,000 house purchased in 2012 (that was the average price in April 2012), is now worth $1,578,542 (the average price in April 2017). You’ve probably made more money on your house than you did by working.
- Remember why you’re selling. Nobody knows what the future will bring, and it’s possible that your house will be worth less in 6 months than it is today. Of course, it could be worth more too. It’s impossible to time the market, so focus on living your life and making changes to where you live for the right reason.
- Different times call for different strategies. Pricing tactics that worked a few short months ago may not necessarily work today. The days of pricing low to generate a bidding war may be over, at least for now – but that doesn’t mean you can’t make a ton of money on your house.
- You may want to sell BEFORE buying. I know, this is contrary to the advice you’ve been given for the last couple of years, but it might be the right strategy now. If there are more properties on the market, it’ll be easier to buy – and it will likely take you longer to sell.
- Make sure you hire an agent or team who is on top of what’s happening as it is happening. It’s times like these where the people or teams who sell 100+ homes a year have a better grasp on the nuances of the market than the people who sell 6 homes a year….and knowing what those nuances are and how to react quickly is CRITICAL.
- You need to have a strategic partner. Remember when you could just put up a home on MLS with crappy photos taken from a cell phone and it would sell? Those days are over. Staging, marketing, and negotiating skills are what make the difference in a tighter market.
I have about 25 blogs in my head right now, so stay close to blog for the next couple of weeks as I share more of what’s happening in Toronto’s real estate market and what you can do about it.