It feels a lot like early 2017 all over again...But what's different this time?
Do you ever get deja vu? I've often been in a conversation with someone I've never met and all the while I'll be having an internal monologue with myself that usually goes like "I know I've met this person before and we've had this exact conversation. Or maybe I just don't remember them and I look like a jerk for introducing myself again like a stranger. Or maybe I had this exact conversation with someone else?" By then I've usually lost track of what the other person is saying and I'm forced to just smile and nod politely. I probably watched too much Seinfeld growing up.
Not exactly the best example of deja vu, I know, but I thought the idea was pretty fitting given what's going on in the Toronto real estate market. In short - it's crazy out there. Again.
Now "crazy" is a pretty generic word and could mean just about anything so let me try to explain.
If you recall the market in early 2017, it was probably the tightest and most competitive housing market Toronto had ever seen. I haven't been doing this forever but even my colleagues who have been in the industry for 20 or 30 years have said they had never experienced anything close to how much demand came out of nowhere and how quickly prices for every housing type exploded overnight back then. And at the same time, supply levels dropped off a cliff and the result was inevitable - prices started jumping. Quickly. And it was a frenzy.
I remember working with a specific couple at the time who were condo hunting. In January 2017 when we started the search we knew bidding wars were going to be the norm (as they always are) so my advice was to use a rough gauge of $650-$700/sq ft as a "gut check" when trying to get a feel for what places could sell for. By March 2017 I was advising they use $800/sq ft as their reference point. That's how quickly the market moved and how tight inventory levels were before the Liberal government came out, stoked fear in the market and put a temporary end to the frenzy.
Fast forward to 2020 and inventory levels are back to all-time lows, demand is insanely high, and $1100/sq ft is becoming the new normal for downtown condos. Freehold houses are just as challenging. For the first few weeks of 2020, I could probably count on one hand the amount of freehold properties that were actively listed anywhere within a 20 minute drive from the financial district. That's a serious supply issue. So it's no wonder that the handful of houses that did hit the market in January 2020 were receiving 20, 30 and even 77 offers! (That's not a typo).
But there are a few differences between the 2020 market so far and the early 2017 market:
1 - Prices are much, much higher now. This point is what makes the incredible demand in 2020 so surprising. It's much more difficult to afford a condo or a house right now than it was in 2017, and yet the demand feels stronger today than it's ever been. There's just that much confidence in Toronto real estate that buyers are finding a way to afford it. And that usually means buying a smaller house, or a house further out, or being cool with a condo instead of a house. The feeling out there is "get what you can". That feeling is no different than 2017 but the prices aren't even close.
2 - It's harder to get a mortgage today than it was in 2017. The new stress test wasn't introduced until Jan 2018, which made qualifying for a mortgage much, much more difficult. But that test didn't come into effect until after the frenzy of 2017. Today, even with the stress test in place, demand is through the roof at nearly all price points. So again, buyers are finding a way (co-signing, money from parents, etc).
3 - In 2017, it felt like prices rose steadily yet quickly from January through April. But in January 2020, it just feels like prices jumped immediately out of the gate. Remember my clients from 2017 who watched condo prices rise from $650/sq ft to $800/sq ft in a matter of months? Well, 2020 didn't really give us that opportunity to adjust. It feels like prices in Jan 2020 just jumped close to 5% from identical sales that occurred in November and December 2019. Again, not a typo. FIVE percent without warning. And I can show you several sales where the increases were much, much more dramatic. Honestly, this is what caught me off guard the most. No warning, no build up. Just bam - prices are up. All my buyer clients in 2020 so far who would quote me sale prices from the fall of 2019 were getting blindsided when we'd see places sell last month and it forced them to reset their expectations. Prices from 3 months ago now mean nothing. That's Toronto real estate for you.
I'll be honest, I thought the first few sales in 2020 were outliers. Perhaps frustrated buyers from late 2019 who couldn't find what they wanted who just went all-in on the first place that hit the market in 2020 and were ok overpaying a little. But when a condo one of my clients recently liked received 32 offers on offer night, and the next received 3 bully offers within 6 hours of hitting the market, and a house on the east-end my clients were looking at sold for $100k more than what I estimated, it's safe to say that those initial sales were not flukes and we all have to wrap our heads around this new level of demand and what new market values are today.
The good news? There is finally a small increase of inventory hitting the market and as we move in the busy Spring season, we should see sellers finally putting more up for sale. But when inventory levels increase from "anemically low" to "incredibly low", it doesn't really help. The Spring will be crazy so if you're a buyer, get ready for a fight. And if you're a seller, don't feel bad smiling a little.
Have you checked out my previous blog posts?
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Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)