27 Jul The summer market continues to soften, where is it going?
Last week I noted that the market is beginning to shift in favour of buyers for the first time this year. This week I am continuing to see evidence of this in the freehold market downtown. More homes are being re-listed after not receiving their ideal offer on bid night. More homes are being reduced after buyers baulk at some owners unrealistic price expectations. More houses and condos are accepting “offers anytime” and not holding offers in hope of a bidding war.
It is not unusual for the market to slow down in the summer, as many buyers step back from the stress of buying a home and enjoy the weather. As such, it is important to not extrapolate current market characteristics to forecast the rest of the year. What is different about this summer is that for the first time in a long time we are in an environment of rising interest rates. This is also the first summer under the new mortgage regulations. Home ownership is becoming more restrictive and less affordable instead of the other way around. In the last decade the Canadian government has been more concerned with jump starting the economy and has been fuelling growth with cheap debt. Now it’s time to carefully ween us off the cheap cash.
An area of concern is the condo market. Although rents are at all-time highs, unsustainable appreciation plus rising carrying costs have made purchasing a condo today a questionable investment: you are unlikely to find a unit that will carry itself, let alone be cash flow positive. In a rising interest rate environment, how long before first-time buyers can’t pressure prices higher? The average condo in the 416 is now over $600,000.
Currently there are better investments to be made in Toronto real estate than in a traditional condo, especially if you are thinking pre-construction. Buy something unique!! As such, I view this as a great time to cash out on a condo, depending of course on what building the unit is located in. I don’t think I am alone in this view and I believe we will start to see many units in investor-owned buildings come on the market over the next year. To what extent and how quickly this happens may determine the trajectory of the real estate market in Toronto.
Nick Horton, July 27/2018