Will Toronto Home Prices Go Up This Fall?
If the last three years have taught us anything, it's that we can't predict anything.
I think Back to the Future is one of the greatest movies ever made. I was bored a few weekends ago and I binged all three parts back to back and I'm still amazed that these movies were made back in the 80s! I mean, the quality of the effects were well ahead of their time and the storyline is one that's been copied over and over in countless other movies since. Michael J. Fox is a true legend. And that classic DeLorean will always be connected to those movies.
But the one thing about time travel movies that I really dislike is that they hurt my head. I always find myself pausing the movie, replaying certain scenes, going over the storyline again and again, trying to figure out why the time traveler does or doesn't run into himself in the past, why certain actions cause massive ripple effects in the space-time continuum while others have no effect whatsoever, and whether or not time travel stops or speeds up the aging process in the person doing the travelling. I get lost in my own thoughts! I think mankind will always have a fascination with time travel. I've often thought that if I could see even just a few seconds into the future, it would be the greatest super power. Even better than flying. Maybe.
The thought of time travel often comes to mind whenever I hear economists or real estate "experts" talk about where they think markets will go in the future. They analyze scenarios, talk about historical trends, interest rates, population growth, affordability, inventory, macro-economic events, and then magically come up with precise predictions like "we forecast Toronto house prices will drop 6% in 2023, followed by a 3% recovery in 2024, and then another increase of 5% in 2025". I totally made up those numbers but what makes me laugh is that buyers and sellers (and the general public) actually believe these guys. And then these same buyers and sellers use those numbers as reasons whether or not to buy or sell real estate today, because those predictions came from "experts". You know the only two careers where you never have to be right but still get to keep your job? A weatherman and an economist.
Let me tell you a secret - nobody knows what any market will do. Not the smartest economists in the world, not the most active real estate agents in the world, not the head of any major bank, not CMHC, and certainly not the Bank of Canada. Nobody. The problem with making predictions is that you don't have to be right. I mean, if your prediction doesn't pan out, who's gonna call you out on it? Who's gonna say "Adil, you said Toronto condos would go up 3-4% in 2023 but they haven't. And you're an expert. So what do you have to say for yourself?" By then, the world would have changed, and new predictions will be spit out by the same talking heads who have never been right before. And for some reason, people will keep listening to their every word. Markets, by definition, are not predictable. Markets react to outside forces - i.e., things that haven't happened yet. So whenever I hear someone give a prediction about a market (real estate, stocks, or anything else), I liken it to that person basically saying they can see the future. And if they could, why are they telling everyone what's going to happen? If it were me with that super power, I'd just keep quiet, invest my money where I know I can't lose, and mint my fortune. But I digress.
If the last three years have taught us anything, it's that we have no idea what markets will do even though we think we know what they're supposed to do. Stocks were supposed to crash in 2020, and they did... but then they staged one of the greatest recoveries in history, in record time. House prices were supposed to crash in 2020... and they did the exact opposite for the next two years. Cities were supposed to be dead (remember that?) and nobody was going to live downtown again, meaning condo prices were doomed. Yeah, not so much. So you'll see why I never make predictions about the real estate market, even though this is what I do, day in and day out, every single day. I get asked so often what I think the Toronto housing market will do this month, next month, next year... and while nobody wants to hear a so-called "expert" respond with "I have no idea", I will always give a quick analysis of why prices could go up, or down, or sideways. But if you're listening really closely, you'll realize that I really, truly have no idea. Because nobody does. I'm just not afraid to admit it ;)
So will Toronto home prices go up this Fall? Instead of answering that, let's quickly look at what I think are the two biggest catalysts that could/should have an impact on prices, then we can decide if we're qualified to predict the future:
1 - Interest rates: As I'm writing this today, the Bank of Canada chose not to raise interest rates after two annoying surprise hikes in June and July. What will they do in October at their next meeting? That's anybody's guess, but for now there's a slight sigh of relief out there that maybe, just maybe, this whole "raise rates until we break something" crusade might finally be over. Or at least it could be soon. That should give buyers confidence to get out there again, much like they did back in January when the Bank of Canada first said they were done raising rates (which they were not). House prices are extremely interest rate sensitive. The cost of borrowing money can't be ignored when thinking about where real estate prices will head in the future. But it seems like, at least for now, buyers are starting to get used to mortgage rates in the 5.5-6% range and realizing that there's not much they can do about it. A lot of buyers out there don't have the luxury of waiting for interest rates to come down. If you want (or need) to buy a house and you need a mortgage, it is what it is. And you find a way to make it work.
2 - Inventory: This is the big one. If there's nothing to buy, it doesn't matter how expensive borrowing money gets. Supply and demand will always reign supreme. If you need or want to buy a house, and you can afford it, but five other people are in the same position as you and you all want the same house because it's the only one in the neighbourhood for sale, then it doesn't matter what all the so-called experts say is supposed to happen to prices. As far as you're concerned, it's a seller's market for the houses you want. That's basically the issue with the Toronto real estate market right now - there are just more buyers than houses to buy. And it's been like that for decades. So unless that dynamic somehow changes overnight, the supply/demand equation will continue to be out of balance, effectively keeping prices from falling (or at least, falling too far for too long).
We could also get into topics like population growth, immigration, and political red tape, but those are really longer-term issues and I really wanted to focus on this upcoming Fall market. I think interest rates and inventory levels are really the only two main things that will dictate what will happen to Toronto home prices for the rest of the year. If interest rates go up, it will seriously affect purchasing power. But that would be somewhat negated by a lack of inventory. So if anyone has that super power of being able to see into the future, give me a call because I'm sure we'll have a lot to talk about ;)
Have you checked out my previous blog posts?
Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)