graham real estate blog
Beware of the Toronto Real Estate Market Crash Headlines
Let’s take a moment to discuss a market narrative that you’ll be bombarded with over the next couple of months. Specifically, the messaging concerning the year-over-year real estate market statistics throughout the GTA. You’ll be presented with information regarding the correction of the real estate market since February 2022 and some sources will suggest a Toronto real estate market crash.
The Problem With Headlines
The general market messaging is usually not the issue. The core issue is how the data will be presented to you, the consumer. The clickbait headlines will suggest a pending Greater Toronto real estate market crash. In reality, the majority of the market changes occurred last spring. In fact, since the summer of 2022, the market has been more-or-less flat with minor fluctuations. Bank on it, you’ll see headlines such as ‘GTA real estate prices see major decline’, ‘GTA real estate sales at an all-time low’, ‘Are we in a buyer’s market?’, ‘Toronto real estate values are crashing’, and the like. A few headlines are already making their way through the media and social platforms, such as this article from BlogTo (link).
For the record, I’m an avid news reader and firmly believe the media serves a critical function for society. But I have a bone to pick when it comes to click-bait writing.
Misleading Presentation of the Market Details
The issue with these current and pending headlines is two-fold. For starters, it’s misleading. Of course, we’ve seen significant changes within the real estate market across the GTA over the last year. No city has been spared, whether it’s Toronto, Milton, Oakville, Mississauga, or the like. We’ve experienced significant declines, changes to buyer and seller activity, and sweeping borrowing cost increases. But most of the so-called shift occurred months ago. We’ve been operating in this more balanced state since approximately July of 2022, with most of the significant changes occurring between March – June.
The below graph shows the average home sale values over the last 12 months. The graph clearly highlights that home values have stabilized and unlikely there will be a Toronto real estate market crash. Of course, the graph only highlights one metric, but complimentary data suggests the same.
Guiding Home Buyers & Sellers Down the Wrong Path
The second issue is that these headlines will potentially guide buyers or sellers down the wrong path. There isn’t a day that goes by that I don’t hear someone state the market is positioned for a crash in 2023, more so than it already has. This is generally viewed as false. The opposite is likely true – we may see home values increase across the GTA by year-end. The reason for this is simple, buyer demand. The demand for housing in the GTA is very high; it is currently dormant due to general economic uncertainty and lower consumer confidence. The current market conditions can offer an incredible opportunity for some people. Although home values are much higher than people would like, they are substantially lower than a year ago. The spread between a townhouse and a detached (or any housing style) has shrunk considerably, making it easier to upgrade. Homebuyers can effectively negotiate on price, conditions, and closing times. Buyers can take more time viewing homes and make more informed decisions. And home sellers can still sell their property within a month or less, on average.
When people are bombarded with misleading headlines and fail to read into the details, they are often given the wrong impression of what the market is or is not. As a result, people may make decisions based on biased and/or disingenuous information.
None of this is to say that we don’t have to be careful. The market is fluid and can change quickly, as we saw last March. One thing is clear, the current market is not in a free-fall, and we do not expect this to occur, regardless of what a headline or TikTok-er suggests. Your best bet is to never bet against GTA real estate.
Guiding Home Buyers & Sellers Down the Wrong Path
The final point I’d like to address is the impact of current interest rates when buying a new home. I’m constantly hearing that it’s more expensive to buy now due to the rates, which inherently makes sense. However, with the price declines we’ve experienced, monthly mortgage payments have barely gone up. Let’s look at an example comparing a home purchase in February 2022 to January 2023:
– 5-year fixed mortgage at 3.25% with 20% down payment
– Purchase price of $1,000,000
– Monthly mortgage payment of $3472
– 5-year fixed mortgage at 5.25% with a 20% down payment
– Purchase price of $800,000 (accounts for a 20% value reduction)
– Monthly mortgage payment of $3512
As you can see, the monthly payment in the above scenario only went up $40/month. For all intents and purposes, that is a negligible increase. In addition, I used a 20% reduction in home values, but in some cases, that percentage is higher, further highlighting that the current mortgage rates are of minimum impact for some people.
Rates become a more salient issue when considering the impact of the mortgage stress test, and people renewing their mortgage at a higher rate. In the latter case, we may see some homeowners unable to afford their current home due to the increased cost.
Greater Toronto Real Estate Prediction for 2023 / 2024
Now that I’ve finished my cautionary rant, let’s quickly cover where we think the GTA real estate market will head in 2023/2024.
The Bank of Canada rate increased again in January. There’s some indication from the BoC that they may pause further hikes, but there are too many variables that determine this to predict accurately. Home values will likely remain flat until the summer. We could start seeing fixed mortgage rates decline, which has already begun with some lenders. Depending on the economic outlook, the BoC may start lowering their rates by year-end and into 2024. Once would-be homebuyers start seeing rates decline, they will enter the market in droves. This will subsequently apply upward pressure on home values, once again.
The above is speculation based on historical trends, consumer behaviour, and current data analytics. Although it’s our prediction, we know many things can change between now and year-end. Regardless, the latter part of 2023 and certainly 2024 is positioned to be much stronger, and we’ll likely find ourselves in a seller’s market again. Remember, predictions are inherently flawed and should not be used to make financial decisions. Focus on the current outlook to determine if the market suits your needs (or not).
To summarize, avoid paying too much attention to headlines over the next few months and ensure you’re evaluating the market in its entirety. If you’re in the market to make a move, there are some great opportunities out there for buyers. And if you need to sell your current home, just be aware it can take a bit more time, and proper pricing and marketing strategies are of paramount importance.
I fully recognize the current market conditions can be confusing, and my above commentary is only one of the dozens more you’ll hear and read. The information we have provided above is the tip of the iceberg in terms of the data we constantly review.
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