It’s true, the Toronto real estate market continues to cool, but there are three important things to remember about buying and selling homes.
In the summertime, the market typically follows the advice of Campbell the dog and The Pie Shack, 2305 Queen East at Glen Manor
- For those of us who have been around the real estate market for years, we know the market is seasonal. The summer is traditionally not as lively as spring or fall since folks are busy vacationing in the hot sun and spending quality time with their friends and family. If past trends are any indication of the future, and we believe they are, activity is expected to pick up again in September.
- It is important to remember this current cool-down is after several years of a superheated seller’s market. In the past two years, median housing prices jumped up about 12% across Toronto. Prices are now settling to more historically realistic levels on a year-over-year growth basis and we believe will continue to trend this way for some time.
- Media reported market statistics are often aggregates of all Toronto real estate, or even Canada-wide. In highly desirable Toronto neighbourhoods such as The Beach, homes will continue to be bought and sold based on local market conditions, which often do not necessarily follow other market area trends.
What has happened over the past few months is the market has shifted to one favouring buyers. Buyers can now enjoy an increased number of available properties to choose from, and generally have a reasonable amount of time to compare and assess their potential purchase. But don’t be fooled, the best properties priced attractively are still selling briskly. Days-on the market in The Beaches currently stands at only 26 days, up from a 14 day median year-to-date.
Even though economists cannot agree on the future state of the market, based on what we are observing with our clients, we believe the market is near the bottom, and will see a moderate upswing this fall. For some time thereafter we expect to see a balanced market where buyers have time to compare properties, and sellers still obtain fair market value in a reasonable amount of time.
Remember regardless of the market conditions, The Beach is a fabulous part of the city where many people want to live. Engaging a local experienced agency to work with you is critical to ensure you can maximize the opportunities available.
Analysis performed by O’Neill Real Estate Limited using data from the Toronto Real Estate Board
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Good synopsis. Thanks for posting this
Good synopsis? The excuses are running thin. Maybe because it’s too hot and folks would rather be by the pool that they’ve paid for with their HELOC, ya try that one next, perfect fit.
Hi David,
Thanks for your comments. What are you seeing in the market you serve?
George
Reached the bottom!!
We haven’t even begun. First sales, then prices. History always repeats itself. At least in the 80′s we had savings, yes higher interest rates, but gas, hydro, p.taxes were much lower as proportion of income which more than offset the higher rates.
Very few have cash on hand without going to their home equity credit line that they’ve been treating like an ATM. Brace yourself my friends, 1990-1995 will seem like a walk in the park compared to what we are going to go through.
Hi John,
Thanks for sharing your thoughts. You may be correct, only time will tell. What we are seeing in our market (Toronto Beaches and downtown, predominantly) is a reduced number of transactions during the summer this year compared to last summer, but about the same as the summers of 2008 and 2007, before the current recession. There is certainly price pressure downward, but prices are not as elastic as transactions – i.e. prices do not tend to fall as fast as the number of sales. Sellers will resist price adjustments downward for as long as they can, and some who do not really have to sell, will take their properties off the market until they believe the conditions are more in their favour.
I agree with you, history does repeat itself, and we are in a seasonal adjustment. I do not see any structural reasons that should cause the majority of people to be overly concerned. Certainly, there are individuals who have over-extended themselves with credit, and if they happen to lose their primary source of income, they can be in trouble. I recently visited a house where this was the case, and I sold not too long ago a power of sale property. But fortunately, at least in the market I service, we are not seeing this to be significant factor.
I do expect to see sales pick up again in September, but not to the level we saw last year. If properties are reasonably priced, I expect they will still sell. We are fortunate to work in one of the nicest areas of the city.
Residential real estate is very personal, and very local. I do not like to over generalize. I like to rely on facts, and on our observations on what we see in the market, first-hand.
Do you have any specific predictions on where you think the market will go?
George
what floor? there was not even a price decline yet? give it up pal, you are making yourself look stupid.
Hi Rick,
We are certainly seeing some price declines, with some sellers settling on prices lower than they would have obtained 12 months ago. For example, we just had a sale close where the seller needed to sell, and we dropped the price around 8% over the course of a month in order to get the property sold within the timeframe the seller needed. But that is only one property of several that have not had any price declines, my firm is currently engaged with.
I do not think any declines, at least in the market I serve, will be overly drastic, and has as much to do with the seasonality in the market (which we really did not experience last year since the market continued strong for most of the year) as it does with the introduction of the HST in Ontario, mortgage rates increasing and people listening to certain fear mongering.
Look, no one has a crystal ball, and neither you nor I know exactly where the market will be in the future. But, there is one thing for sure, I tell it like I see it, with no filters nor fear.
George
George – one or 2 houses that had to have their prices reduced does not spell bottom, I have owned re before and will again, just not at these prices. Many buyers today are hapless sheep who follow one another with no money and pitiful job prospects. These same people have nothing to lose, they buy with nothing down and if it all goes to hell they bankrupt, while the responsible buyers in the area get whacked with declining prices.
The re market today is a dump; we need it aligned with incomes and not virtual cheap credit. I make a six figure income and have wads of cash and would not touch this overpriced asset class with a ten foot pole. Have a nice night!
Thanks Rick for your comments.
I do not agree with your perspective on buyers. The clients I deal with are generally well informed and make thoughtful decisions.
I would encourage you to not overgeneralize. Real estate markets are very local, unlike financial markets which are national and often global in nature. The credit crisis in the U.S. is proof of that, causing the global financial meltdown in the fall of 2008.
I do agree with you that one does not want to get over-leveraged. That is not good in any situation, especially if one’s job is at risk.
George
Georgie bye, your rose coloured glasses are steaming up; take them off and give them a wipe. We’ve had the longest and biggest run up of cheap debt-fueled property valuations in the entire history of this country. Wait for the results of the next Fed election to see the hell hounds of fiscal restructuring turned loose. CMHC been directed to egg on the banks to create mortgage money just to sustain the illusion of prosperity long enough to snare a Conservative majority gov’t. If this strategy doesn’t work then whoever does creep into office will have to clean up the mess anyway and then they’ll be nailed with the backsplash. Take a look south of the border, that’s exactly what Obama’s admin is now dealing with. Typically governments do their “heavy hitting” immediately after winning an election with all the appropriate noises about fiscal responsibility. They’ll then slowly unlock the treasure chest toward the end of term in office when the electorate has been lulled into a stupor. This is not the beginning of the end, but just the end of the beginning., you ain’s seen nothin yet.
Hi Robert,
In terms of politics, I certainly have my opinions but I will leave those out of this reply since they would be very much a personal statement not founded necessarily in market observations.
But, please let me address your reference to the U.S. real estate market and, why what happened there I believe, will not happen in Canada.
First, the Mortgage Interest Deduction program in the U.S. allowed homeowners to deduct from their taxes the interest paid on the mortgages assigned to their primary residences. This resulted in many people refinancing to the maximum amounts allowed in order to obtain cash to buy cars, go on vacations and to spend as they wish, since the tax laws essentially rewarded this behaviour. In Canada, we do not have such a program for our primary residences, so refinancing to the max was not as widespread.
Second, there was an excess of Wall Street capital in the early 2000′s looking to be put to work, and the banks and mortgage companies decided to invest in mortgages because the housing market was growing. In order to put this money to work in the market, lending standards were lowered to reach a broader customer base, to the point where many people did not have to prove their income, did not have to provide any proof of their financial status beyond stated information and a credit verification. So called NINJA (no income, no job, no assets) loans were all too common letting people qualify for a mortgage, with little financial ability to actually service the loan.
Third, as a teaser, adjustable rate mortgages were offered, where low initial rates encouraged the borrower to obtain the mortgage, with the rate rising at a later time, at which point it was assumed house prices would be higher so there was no need to worry about that at the inception since the property could be refinanced for more money to take care of any payments owing. When the rates did rise, many people could not afford the higher payments, and since the housing market slowed drastically, the value of their homes had declined, in some cases below the amount currently owed. Therefore, many people walked away from their homes and let the banks and mortgage companies foreclose. These so-called Sub-Prime mortgages were about 20% of the U.S. market, but in Canada our sub-prime market has stayed well below 1%.
There are structural differences between the U.S. and Canadian real estate markets. Unless we are headed for another severe slowdown based on global events we are not seeing right now, I do not believe we will see a crash here like the one experienced in the U.S.
Check out this video which provides a great overview of the source of the U.S. credit crisis and market crash: http://vimeo.com/3261363?pg=embed&sec=
As well, see the analysis performed by the Federal Reserve in Cleveland comparing the Canadian and U.S. mortgage markets: http://www.clevelandfed.org/research/commentary/2009/0909.cfm
George
Why does O’neil not give his personal guarantee that if the market price goes down, he will compesate for any losses!!
Dare do it
talk is cheap!!!
Hi Kenda,
I think that is a ridiculous suggestion.
I am not saying prices will not go down. I am saying we are close the the bottom right now because of seasonal adjustments. You cannot compare sale activity last year at this time, which was a peak year by any standard, and say our market today is terrible. We are in the summer, and I expect the market will resemble an historical fall market again starting around mid September. We are back into the regular seasonal market trends.
No one knows what the future really holds, but unless some global event comes out of left-field, I am not expecting drastic reductions in downtown Toronto and The Beach, the markets I serve.
George
Bottom?!! You must think the general populous are a bunch of feckless twits!
The Market has only begun its downturn.
Any fool who would turn to this guy to buy or sell – must be sadly gullible and uniinformed.
I’ll keep a copy of this and then come back and ‘visit’ Mr. O’Neill and see what he has to say then.
Read and learn people:
greaterfool.ca
Hi John,
You are obviously a fan of Garth Turner and his opinions. I can’t say I agree with you or with all of his opinions on where the market is going.
I don’t claim to have a crystal ball, but I do call it like I see it, based on being in the local real estate market every day. I do not generalize, nor am I a fear monger.
Please do check back.
George
Hello??
I’m “checking back”… still think things can’t get any lower? that we’d hit ‘the bottom’?
I’m not a fan, per se, of Garth Turner, but the man knows more about what he speaks than most.
You clearly do not know of what you speak.. or are deliberately trying to cash in on the few fools left, who are still planning to buy a home.
John,
I stand behind my comments. In the Beach and downtown Toronto we are in a seasonal low right now. Could the market crash sometime in the future, sure. But one needs a bubble before there is a crash. We do not have a bubble here. If people run around for years claiming there will be a crash, eventually they will be right. Markets have cycles.
George
Grow some pebbles George and tell the peeps what’s really going on market wise.
(Read my latest missive for agents that are).
I’ve been down this money road before in the 80′s.
Teach your people to Trash debt and RE by all available means.
Be liquid (real estate ain’t). Chase yield and income with select bonds, preferreds, REITs or ETFs.
Hi Garth,
I don’t need to grow pebbles, since I have balls, and I stand up and tell it like I see it.
Surely, you are not suggesting everyone should sell their house since it is an illiquid asset, and buy bonds which will go down in value as interest rates rise? Furthermore, should everyone dive into the financial markets with their savings, when professionals are seeing volatile markets ahead? Recommending selling in downtown Toronto today because downtown Vancouver or Calgary may be experiencing price declines I think would be irresponsible since unlike the financial markets which float and sink in unison nationally and often globally, real estate is very local and communities do not necessarily go up and down together.
Look, most people buy residential real estate for lifestyle choices, not investment reasons. Of course we want the value of those purchase to go up, and over time they do. I do not believe that will change. One has to be prudent and not overpay, and not get over-leveraged. Working with someone with local market knowledge is critical. Chasing the national headlines is a losing proposition.
I believe real estate will continue to be a solid investment. After all, real estate has created more wealth over the centuries, for more people, than any other asset class.
George
What? How can you say we have reached the bottom when we are just cresting the top?
I do realize that to maintain your livelihood you need to bring in buyers, but misleading them like this is just ethically wrong.
We are on the cusp of a multi-year deflationary slide and the last thing we need to do is lead people to lock in so much money on a deflating asset….that is irresponsible. If you don’t agree we are on this path, you have to see that us (and the rest of the world) are on shaky economic ground, so at least we should be cautious and wait for a year or so to see how things play out…at least that is the advise you should be giving…but I realize that doesn’t make you any money.
Hi SA,
Thanks for your thoughts. I do not base my opinion on what makes my firm money or not. I tell it like it is, since I do not control the market, and therefore buyers and sellers will govern themselves accordingly.
Time will tell if your opinions are correct, but to tell all people to hold off right now on buying or selling is painting the market with too broad a brush. As well, it does not respect individual situations with respect to people’s desire to have a safe and comfortable place for their family.
We are currently working with investors who are taking money from the stock market and buying real estate. They know that over time, real estate has proven to be a great asset class to own, one that is both tangible and does not necessarily swing with national or global markets.
We are also working with first time home buyers, who know that in a period of price pressure, buying is a wise move when they are on solid financial footing.
Waiting until you read reports that things are OK, is like staring in the rear-view mirror when driving. Unless you look ahead, you have already missed your destination.
George
What weak realtor propagnda as the housing crash continues to get worse. Even friends who are realtors tell me this is just the start of the housing crash. I have to admit they just tell me that and not the people who they want to sell to since they make no money if they do not sell. Realtors have a vested interest so they have to lie to sell or they make nothing. This is just the start of the housing crash.
Hi Greg,
If you read through some of my previous comments, I think you will see I tell it like I see it. I am fully transparent.
Our firm actually makes money in both up markets, and down markets, so spinning a story has no interest to me.
Perhaps your friends should be more honest with you and their clients.
George
The only fool bigger than the one telling people TO real estate prices have hit the floor is the fool that believes him. Talk to me in 2012.
Hi Arthur,
I think you are wrong.
George
Judging by house prices alone the housing mania in Canada never reached epic proportions, like in Spain.
However, house prices-to-incomes are pretty lofty in Canada.
Some intreresting charts: http://www.planbeconomics.com/2010/08/05/country-to-country-comparison-housing-bubble/
Hi MO,
Interesting charts, thanks for adding these to the discussion.
George
You are correct that Real Estate is all about location location location. Desirable areas will always hold there value better and recover sooner than the white bread cookie cutter burbs. Personalty I would sit out the market until direction is established. Pretty much everyone agrees that the hot streak is over. Personally I think we’ll see a repeat of the early 90s when prices crashed and took a decade to recover, rather than a US style meltdown.
Hi Rob,
Thanks for your comments. One month’s report of a slow down does not necessarily make a trend. I think we should watch the market closely over the next 30-60 days. I am expecting the local market to shift into a not atypical seasonal trend.
George
George,
This antiqudated, archaic, old world and largely uneducated point of view that real estate is always a good long term investment has got to stop. Case and point, tell that to the people in WIndsor, or Michigan or Buffalo etc. that RE is a good long term investment and they will tell you otherwise.
To buy RE now after 10% price appreciation a year for the past ten years,while incomes have remained flat and debt levels have skyrocketed is foolish and your promotion of it is abomidable.
There will be a time to buy again…it is not now.
BTW- I have ridden down to the beaches several times this summer on my motorcycle. Have spotted several (lots)homes for sale lasting longer than your 14 days or 26. The trend lower has started and is picking up steam.
As for RE as an investment, cap rate is all that matters 8% or better, might be a good buy all other factors considered, less than 4% stay away regardless of other variables as it is pure speculative play.
Also regarding stock market, yields on some blue chip stocks up as high as 9%,perferreds of TD Bank down at 4.5%. Sounds like a good safe bet to me.
Hi Steve,
Thanks for your perspective, and sounds like you are knowledgeable. I can’t agree with your perspective that my view on real estate investments is archaic and uneducated – the facts speak for themselves if you care to check my background.
There is nothing wrong with people looking at real estate as an investment, and weigh their options against other investment vehicles, like stocks, bonds, mutual funds, etc.. But, I do not believe it is wise to tell everyone to sell real estate and move their money into the financial markets. Look what would have happened in the middle of September 2008 if that was the case. Your argument just does not hold water.
The majority of people buy residential real estate because they need a place to live, and then they go out into the world and earn their money by working. Few look at their home in pure financial investment terms, since a home means so much more.
In terms of Cap Rates, the higher the better for buyers. Listen, if you can find an 8% CR in the city of Toronto in a good area that does not require a significant capital investment to improve the property, you should jump all over it. CRs are closer to 4-6%.
Of course some properties will take longer than the average days on the market to sell, that is why the number is an average. We are in the summer and days on the market does increase. I expect this to resort to the normal seasonal trend in the fall.
I feel for people who live in cities that have areas that are in decline. That is why location is the number one consideration in purchasing real estate Look, if you buy a crappy stock, do you blame the overall stock market or do you take responsibility for your decision? Tarnishing the entire real estate industry just because some cities have declining markets is over generalizing things.
I encourage everyone to inform themselves – don’t just listen to some talking head and follow along blindly.
George
George,
The view , the widely held notion that RE is always a good investment is what I was attacking, not your educational background . Please do not take my comments personally.
I do not follow “talking heads” . If I did I would have followed all the purveyors of RE over the precipous that RE is facing and the wreck it will / has become, by buying in the past three years..I have not. I do not agree with all of Garth’s points either but believe his advice to diversify assets, seek income and protect capital much more prudent than to borrow, leverage up RE purchases and saddle your holdings to a single asset tied to a slew of expenses ,taxes and responsibilties.
I agree with you, never wise to make all or nothing decisions so selling RE to put all their money into financial markets would probably not be advisable either.Not sure where you got that from in my reply but I leave that to you to answer. HOWEVER ,the problem George is that most people have their entire net worth tied up in their home. Realize George, that if a person has even a mortgage of say 40% of the value left on the house, they more than likely have no other financial assets, thereby making the single home their ONLY asset. If they did, they would not have the mortgage, more than likely. These people are not diversified, hold a non income generating asset and an expense of the greatest magnitude. What is comical, is that if you were to find an individual with ,say, a million+ in assets in the financial markets with no RE ownership, heaven forbid, a millionaire renter, most would scoff. Yet to find a millionaire on ‘paper’ as an owner of a home, say, in the beaches and nothing else is viewed as the norm. In the first example, that guy can live as he chooses, earning a return on his financial assets, and well diversified., and able to change his investment landscape instantly with less than a 7 dollar trading fee. In the second, the individual has to work everyday to pay all of the expenses of home ownership, with terrble liquidity and worse, in a big downturn trapped and suffocated with declining value and outrageous costs to get out. I was the guy in the first example up unitl about 8 years ago when I finally bought a home. Paid in full BTW. My assets in financial markets exceeds the value of my home. I have no desire to “upgrade” to a better house or location.
As for buyingRE in the right location, you never really know. Much like the stock market. I have no Idea whether RIm shares will double or go to zero, but what I can do is control the amount of my “balance sheet” I expose to it. When I buy a home with any mortgage, I have plunked my entire balance sheet into the postion and boy it better be right or I will be hurting.
I disagree with your viewpoint that few look at a home as a pure financial investment. I can tell you that the frenzy of the past several years have caused all buyers to look at their home as a “good investment” meaning financial.
To encourage the continued expansion of debt levels of consumers, through the pruchase of illiquid assets, at a time when incomes have remained stagnant and the asset they are primarily buying has outstripped any rational level of price appreciation, is irresponsible and unethical of anyone who is doing so.
Hi Steve,
Thanks for your thoughtful update. I agree it is wise not to tie up all of one’s assets in a single class. Diversity is the first rule of investment.
What I do have trouble with is advice floating around the comments on this blog telling people to sell all real estate and dive into the financial markets. No matter how beneficial that would be for my business since it would generate lots of sales, I do think it is appropriate nor warranted. But, selling real estate and investing in stocks, bonds, ETFs, et al would generate business for financial advisors.
Based on my experience having now worked with hundreds of clients over the years, I have to say I do not believe the majority of residential real estate buyers only view their purchase based on economics. Most people do not understand what a Cap Rate is, most do not understand how to calculate ROI, nor should they.
What most people want to know is they are not overpaying for their home, that it is in a good community, that their family will be safe, that local schools are well rated, that shopping is close by, and that the value should appreciate over time. We help them achieve that, but of course we cannot control the market, and cannot guarantee the later, nor can anyone, for any asset class. But, one thing that is not in dispute, is that in the long run real estate has proven to be a good investment for many. You may not believe that, and that is fine. But those are the facts.
Look, to each their own. Some people may think real estate will crash, but I do not. You need a bubble before you can have a crash, and we have not had a bubble. A downward summer trend in sales does not make a real estate market crash, especially since that trend is because of normal seasonal adjustments.
George
George,
Selling RE would only be advocated for those who have to much of their net worth tied up into it. An individual with a 1mill+ home in the beaches with a mortgage of any size and NO other savings or assets would be better served scaling back by selling, eradicating the mortgage ,and diversifying his balance sheet. Much better to own outright a 400k property for example, with no mortgage and 400k in financial assets then a 1mill+ property with a 200k mortgage and no other assets. Of course the example I gave above is optimistic. The fact that people have gorged on low interest rates to fuel a RE market completely distorted and disconnected from economic reality means that the mortgages they are carrying are more than likely much more than the goldilocks scenario I gave above, meaning of course that their exposure to RE in one , undiversified, highly leveraged, non producing, highly expensive to maintain asset is highly risky and fraught with financial peril
Kudos too you for trying to maintain some semblance of consideration to your clients for not necessarily pushing the “sell” agenda simply to pad your commissions. Perhaps to take it one step further you might consider writing to CREA to open up the competitve landscape somewhat, and allow individuals to sell their homes freely through the use of the MLS system. Most RE agents are strictly against that, of course. You mention the influx of new business to advisors should home sales pick up. Luckily, people have the option to go it alone in the financial markets through individually held brokerage accounts and the like, as the free market competition in that field is 100%. I whole heartedly encourage it. An individual has as much information available to him about any financial security as any financial advisor. Too bad the home seller has not as MLS is so strictly controlled by people in the RE industry with a vested interest to protect their commissions.
I agree with you that most people do not know how to calculate a cap rate or ROI. I would add that they also do not know how to properly assess opportunity cost nor time value of money. If they di ,they certainly would not be buying RE right now ! As for the fact that you believe people do not primarily view their home purchase as a financial investment(economics as you say) well, we will have to just disagree on that one.
The anecdotes about RE be a good investment for many have no basis in fact. People view it that way because as we both agree, they have not the ability to do all of the above mathematical calculations. If they did, they would realize their are better things to do with capital. At best, a home purchase is a forced savings vehicle. More than enough studies out of Harvard ( Peter Schiller for example) showing RE to be at best a minimal hedge against inflation and at worst a poor deployment of one ‘s capital. Surely with your MBA you would have read the award winning study.
As for the market crashing, it will not crash, it will decline steadily until the abnormal excesses have been squeezed out of the pricing. My best guess about 35% on the low end to 50% on the high end, gradually over next four years or so. As for sales picking up by September and pricing firming up as you mention…not a chance..the reckoning has started.
Steve
Sorry never been good with names and dates, it’s Robert Schiller and it’s Yale university. Robert Schiller is Harvard also has similar view of real estate. BTW I would not consider these guys to be “talking heads”. Yes I do forget anniversaries and birth dates…LOL
see what I mean ..Jeremy Siegel..Harvard