Predicting the housing market, or any market, is no different than reading tea leaves.
Well, 2018 is underway and agents, buyers, and sellers are getting back into the swing of things and waiting for the market to start back up again. It's been a very quiet couple weeks over the holidays, as expected, and I'm sure the frigid weather didn't help any. But we'll be in the heat of the spring market in no time and I'm more excited than anyone!
I get asked on a fairly regular basis (and by fairly regular I mean almost daily) what I think the Toronto housing market, and specifically the condo market, will do over the next month, quarter, year, etc. In fact, I've been asked that exact question no less than five times in the past two days by buyer clients who I'm actively working with. My response is never short, because I believe in fact-based analysis and I love real estate so much that I tend to go on and on about it. But if I were forced to make a comment about the future of the TO condo market through 2018, my preferred response would be:
"Nobody knows for sure. I mean, I study the market every single day. I'm actively working with buyers, sellers, renters, and landlords, I watch trends and study price per sq ft values like it's my job - oh wait, it is. But in the end, anybody who says they really know what will happen in the future is, well, full of it."
Of course, that's not what anybody wants to hear so my actual response is usually something closer to:
"Well, condos were up ~14% year over year in Dec 2017 and the price gap between freehold houses and condos is still significant enough that condos are becoming the de facto option for all segments of the market - first-time buyers, move-up buyers, and downsizers in a big way. I can't see that demand equation changing any time soon. Yes, there are a ton of condo towers in the core but if you really look at it, and really start looking for a place you would personally live in and add some sort of limiting criteria (ex, a den with a door, or a balcony facing south, or a kitchen with an island, or parking, etc) you'll quickly realize that your options get severely limited very quickly. Add in a preferred location or neighbourhood and all of a sudden you realize there really is a lack of supply.
But will the new mortgage stress test affect prices?
Well, if demand stays the same and supply doesn't magically increase overnight, buyers will just find another way to buy. Either they will move down the price ladder and buy something less expensive, or they will be realistic with their budgets and allocate more of their income to a mortgage, or they will ask family for help.
But buyers will still be buyers.
They won't suddenly disappear despite what you hear in the media. Maybe they'll wait longer to "see what happens" but if you think enough buyers will be "shut out of the housing market" to actually lower prices significantly because that's what the media is saying, then you should find another source for your info. The only buyers who will really be "shut out" of the market are those buyers at the edge of qualifying in the $400k-range, as that's effectively the base entry-point for TO condos in the core. Those buyers, who were stretched to the max when qualifying last year will, unfortunately, no longer be able to afford a condo in the city under the new mortgage rules.
But does that mean starter condos will get less expensive?
Well, those buyers will just be replaced by buyers who previously qualified for $450k and who are now pushed down the price ladder. And this will happen all the way up the price ladder. Remember though, this is only true for people who were house-hunting at their max qualification amount. Most of my clients actually laugh when they realize how much banks are willing to lend them. They say "Adil, there's no way we should be spending that much. We can't afford that much. The bank is nuts". And so the stress test won't affect these folks one bit. Now, all that being said, if buyers (and sellers) THINK that the market should go down then maybe it actually will. I mean, housing markets are just as much psychological as they are about facts so maybe prices will go down just based on the idea that people THINK prices should go down. No matter what, supply and demand will always prevail because that's how markets work....
...so, to answer your question, nobody knows for sure."
And this is the kind of conversation I have with clients every day.
Look, there are a ton of highly-educated and highly-experienced economists, analysts, bankers, traders, etc, etc, etc, who spend all day studying economic and immigration trends, interest rate forecasts, family formation trends, GDP growth stats, new housing starts, etc, etc, etc to try and predict what both the housing and stock markets will do over the next day, month, and year. And guess what - not a single one of them actually knows for sure.
Show me one economist who can actually predict what any market will do with complete and total conviction AND who is right every time. It's not possible. In fact, just about every economist who has publicly made predictions about the Toronto housing market over the past decade has been dead wrong. And yet they are on CBC, CTV, and CP24 everyday making their next forecast while audiences eat it up.
So what makes me (or anyone for that matter) qualified to make any sort prediction?
Maybe it's my job to give people my predictions. Maybe if I don't make a prediction clients won't think I know what I'm doing. But I'm too honest for that.
What I can show you is proof about how strong demand is at any given moment, and I can show you my analysis of why a certain unit in a certain building sold for what it did and whether or not they paid too much or too little based on a host of data points, but if you want me to tell you what that same unit will sell for next month or next year or in five years, you'll have to excuse me because I'm just not that good at seeing the future. And I wish more people would admit that.
But I will say this - I personally own a number of condo units in the city and I'm not selling a single one. So maybe that fact alone is my prediction on the future of the TO condo market. And maybe I should just lead with that point going forward :)
If you have a comment, feel free to leave it below. And remember, if you haven't already, please "like" my Facebook page, follow me on Instagram and check back regularly!
Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)