If you’ve been scratching your head wondering what’s going on in Toronto’s Spring real estate market of late you’re not alone. We get it! Last year sellers were getting record prices for their homes and some were selling mere hours after getting listed on MLS. Then the Foreign Buyer’s Tax hit along with a slew of other mortgage restrictions and suddenly homes that would have received a crazy amount of offers mere weeks before were sitting with no buyers in sight. Is that it? Is the market going to take an even more serious downturn? The answer is no!
Let’s look at all the factors affecting the spring real estate market to avoid assumptions, inaction and panic, shall we?
For Sellers, It’s All Relative
Yes, the market has sagged since this time last year, especially in the freehold sector. But let’s put that in context. We had an “artificial market” in the first quarter of 2017 due to a lack of inventory, low-interest rates and a slew of other factors that saw a lucky group get incredible prices for their properties not only in Toronto, but many of the surrounding suburbs as well.
Even though sales and prices have gone down since this time last year (April 2017 to April 2018), we have to keep in mind that we’re comparing these stats to the craziest few months the market had ever seen. Is that sustainable? No. Should you be disappointed that the home you bought seven years ago for $600,000 is now worth $900,000 instead of a million? No. Why? Because your property’s value has still gone up by a whopping $300,000 in a relatively short period of time! What other investment can you say that about?
Also, despite drops in year-to-year comparisons we’re still seeing month-over-month increases, modest as they might be. And with the arrival of actual spring (i.e. no blizzards or snow banks in sight), more buyers will be coming out of the woodwork to purchase.
The experts are feeling hopeful as well. “In the second half of the year, expect to see the annual rate of price growth improve compared to Q1, as sales increase relative to the below-average level of listings,” says Jason Mercer, Director of Market Analysis at the Toronto Real Estate Board. So sellers, don’t panic!
Scary Mortgage Restrictions
We also want to point out there were some scary things going on when 2018 rolled in. The infamous uninsured mortgage “stress test” was enough to spook many potential buyers who didn’t only have to prove they could afford the mortgage they wanted at the current rate, but that they could still afford it 200 percentage points above that rate. (What!) Experts estimated about 18 per cent of potential buyers would fail the test and more wouldn’t be able to get the mortgage they wanted and therefore be forced to look at homes in what they viewed as less desirable areas.
Buyers hoping to get an uninsured mortgage naturally became a little skittish when they heard this news. This in turn negatively impacted the market because buyers were nervous about how higher borrowing costs and tighter regulations would affect their bottom line.
A Natural Market Correction
With this nervousness in the air, sellers by necessity had to start tempering their expectations as buyers became fearful they still might be overpaying if the prices dropped further. We’re experiencing what we real estate experts call a “correction”, where there’s a natural drop in prices, sales activity, or both. In this case, we’re seeing both and it’s natural — something that can’t be avoided and needs to occur to avoid an even bigger drop in the future.
According to the experts, a market correction occurs roughly every 18 years. Canada hasn’t seen a price correction take place since the last one started in 1992 and ended in 1996. So that actually brings us beyond that regular expected 18-year cycle. Which means it makes sense that a price correction is underway.
Good News For Buyers
The good news for buyers is that we’ve seen the average price of a detached home in Toronto decrease by 17.1 percent when compared to April last year and even for those selling, that’s not so bad considering how high prices were last year. You’ll still make a profit if you’ve been paying down that mortgage.
The good old 416 areas are seeing better sales and prices than our neighbours in 905, but chances are that’ll even out once spring sales are in full swing. And don’t get us started on the downtown condo market where prices are up 7.1 percent in March compared to last year.
This also shows that in Toronto at least, the pursuit of the detached single-family home might be one-upped by the condo crowd who’s looking at a more desirable lifestyle choice. Prestigious addresses, in the heart of all the action and low maintenance home care, are the perfect scenario for the millennial as well as the boomer.
Changing Trends in Preferred Locations & Homes
There’s also high demand for the creative re-purposing of properties from lofts to churches which offer a more eclectic way of living to suit the demand of a generation looking for a way to set themselves apart. That means less demand for the once sought after traditional downtown house. Style wins out over outdoor space as does easier upkeep for today’s busy home buyers.
This trend could see a change in what used to be the more stable high demand neighbourhoods in the city and affect the value of these homes. We’re always preaching about the changing values of homes based on the neighbourhood, and this can be extremely volatile with so many little hubs within the GTA.
We keep an eye on these little gem areas and can advise on both the best pricing strategy when selling as well as for those looking to put in offers. Many areas are becoming affordable pockets which brings more choices for buyers. It also means when selling you need to work with an agent that understands pricing and will help you find the sweet spot that’ll get you top dollar without seeing your home sit on the market for weeks, or even worse, months. Last year wasn’t a normal market to use as a comparison – in other words, a more realistic approach to listing prices seems to be the go to this year.
Up & Coming Areas
Last year’s prices have helped to mould what would be considered up-and-coming areas. They might be further out from the traditional high demand areas, but they offer affordable options in charming areas of town that’re often overlooked. This is because the buyers who got “priced out” due to the stress test had to spread out their house hunt which took them away from the higher demand central pockets of Toronto.
Some of the hotter neighbourhoods include Rexdale-Kipling and West Humber-Clairville to the west of the city and Agincourt and Milliken to the east with a little less interest. Some old favourites such as Forest Hill South and the Beaches have seen increases as have Willowdale, Kennedy Park and Oakwood-Vaughan. Some traditionally higher demand and higher end areas that have cooled down include Leaside, Hoggs Hollow, Don Mills and The Bridle Path.
Move-Up Buyers For The Win
Another thing we’re seeing is that because condo prices are rising so drastically, and the condo purchase is becoming more difficult with multiple offers and instant sales, it’s tightened the price gap between houses and condos. This means that making a move from a condo to a larger home is now an option for more condo dwellers who purchased their smaller condo as their first home. They’re now ready to trade that smaller space for their forever home, a place to have kids and settle in to a more stable lifestyle with family. This is great for the move-up buyer who might’ve felt stuck in their small condo with such a drastic price gap which made the equity of their condo seem too small to upgrade.
Better yet, condo sellers will see a wide selection of interested buyers from the first-time buyer to the zoomer looking to downsize and live in a walkable area for their retirement years.
Working with a Toronto real estate team who’s always on your side, not to mention on the side of sanity, will keep things real during the buying and selling process. We’ll represent your best interests AND make sure you pay the lowest when buying and get the highest price when selling in the current spring real estate market! Just give us a call at #416-291-7372 to chat or email us at hello@christinecowern.com. We’d love to connect!
