Cutting Through The Noise

Real Estate can be an emotionally charged topic regardless of whether you rent or own. There’s not a restaurant or coffee shop I go to where I don’t overhear (I don’t generally like to eavesdrop on complete strangers – people I know maybe..lol) people talking about real estate. Torontonians are obsessed with real estate and its impact on financial stability and lifestyle.

The media continues to have a chokehold on the what the public believes to be the truth. The greater the degree of negativity, the more paralyzing the effect. The market is definitely in a state of correction after a surge in prices earlier this year and we are enjoying a much less frenzied pace which most people, agents included don’t know how to interpret. Are prices plummeting? NO. Is the bubble finally bursting for real? NO. Is the market going to crash? Definitely NOT.

The Bank of Canada has implemented a series of steep interest rate hikes over a relatively short period of time. The market (and yes there is definitely a market) has reacted to this translating to fewer sales and stabilizing prices. The media is going to town with a crash and burn mentality and is of course is perpetuating the fear spiral.

The reality is that historically speaking, interest rates are still pretty low. There was a time when rates were over 22%. During the recession in the early 1980s Canada experienced higher inflation (12% vs. time adjusted rate of 8%) higher interest rates (22% vs. 4.34%) and higher unemployment (12% vs. 5.4%). Is the sky falling? NO.

Here’s a look at the most recent Toronto Regional Real Estate Board stats:

Average Price: +0.9% year over year (August). F.Y.I. 2021 was an excellent year.

Days on Market: 22 (by definition a balanced market is 120-180 days, a buyers market is 180+ days)

Months of Inventory: 2.36 ( balanced market is 4-6 months, buyers market is 6+ months)

(aka The Absorption Rate – if nothing else were to come on the market at the current sales rate, how long would it take everything on the market to sell?)

This data suggests a shortage of inventory. Same old story folks.

It is well worth noting that Toronto is a city of neighbourhoods and micro climates when it comes to real estate. While some neighbourhoods are experiencing longer days on market than the average, there are some neighbourhoods where homes are selling in multiple offers. FACT.

Did you know that 30% of all homeowners are mortgage free and 35% of those with mortgages have fixed rates. Smart investors are seeing higher returns with rising rents. Most homeowners with mortgages have built in equity which acts as a buffer to rising interest rates. None of this is conducive to umpteen properties flooding the market. Not going to happen.

There’s a backlog of over 2.1m people who are trying to immigrate to Canada and Toronto’s population is expected to grow by 30% over the next 5-8 years. Millennials who are primed to be first time buyers represent 1/3 the population. Is it any wonder there is so much building going on? Heck, I purchased a pre-construction condo from a highly reputable builder in 2018 and the price/SF has doubled. It won’t be ready until 2025. Will the price/SF be even higher? Am I happy I bought it? YUP.

The Bank of Canada is predicting a 3% drop in inflation by the fourth quarter of 2023 and most economists are predicting that while rates may continue to go up, they will drop back down by Q3 or Q4 of 2023.

Now don’t get me wrong. I am not denying that we are in a slowdown and I can’t say how long it will last. No one can predict the “bottom” but I can tell you that once you think it’s the bottom, the market is already on an upswing. So don’t try to time the bottom.

So my question to you my friends is this? Are you going to find the silver lining? See the opportunities? I’m certainly not hiding under the covers which means you can’t either.

If you bought a home or investment property in this current market, you would have the advantage of buying low without any competition. As rates drop back down you will have the option to refinance at that lower rate. Then you can sit back, watch your equity grow as prices climb back up and think about your next opportunity.

That’s how it works folks. If we have the courage to cut through the noise, we don’t cower in fear. We become creative while remaining wise. We take risks and don’t get stuck in complacence. We work with experienced professionals and we trust their guidance.

Risks are real but fear is a choice. Choose wisely.