I could write a book recounting the unbelievable of the spring market. The insanity reported in the news was reality and I believe that we were in a 3 month bubble which burst shortly after the government announced measures to cool off the GTA real estate market. Things have definitely softened, but I don’t believe a crash is on the horizon. Here is my assessment of past, present and future of the market.
1. The government took some heat out of the market or maybe it was the Media? Everyone was anticipating big changes would get rolled out with the announcement of the Fair Housing Plan. In reality it was a smoke and mirrors strategy to generate talk and elicit common sense to cool down the market. The policies themselves have no real depth.
2. The spring selling season started much earlier than usual this year. Mid January was as intense as a typical April/May market. This volume of business can only sustain itself so long before buyer fatigue sets in. Usually we see the market slow down by mid June. This year, spring just started earlier causing a slowdown in May, a month that is typically active.
3. May’s market report chirped about the glut of listings on the market. Without explanation panic set in that there was 20% more inventory on the market and nothing was selling. This so called statistic needed to be taken with a grain of salt. Listing agents and sellers took a couple weeks to adjust to the softening market. Lowball listing tactics no longer worked and realistic market value pricing has been required for the first time in years. The “flood” of inventory can actually be accounted for by price changes and properties relisting at higher values.
4. The quick market shift caught many by surprise and seller expectations were not in line with the overnight change in market value. For sellers is was hard to swallow that they had missed the top of the market by 1,2 or 3 weeks. Cautious buyers still showed up on offer night, but it was the seller’s who were disappointed when the multiple offers did not meet their expectations. Hence the Relists noted above.
5. This moves us to pricing. It took agents and sellers a few weeks to adapt to the changing market. Prices have actually not drastically changed. It is perception of price that has changed as houses are taking longer to sell and are priced right without offer dates. Pockets of the market that were on fire may be seeing current values more in line with end of 2016 prices. For the most part the condo market has remained unscathed by the changing market, although the unprecedented price increases have disappeared.
6. One sector of the market is vulnerable. Many homes purchased in the bubble by smaller scale property developers are at risk for not closing. These developers rely heavily on uninsured mortgages from groups such as Home Capital to finance their projects. Home Capital’s stocks plummeted when it was revealed that credit applications may have been knowingly falsified. Warren Buffett’s bid has injected a boost of confidence in this market. Let’s hope some of these deals can be saved.
7. Our market is in transition. Prices will still increase year over year. In fact, May sales which the media reported as the “beginning of the end” post a 14.7% increase in price over May 2016. That is still a pretty good return! Look for the summer market to remain steady right into the fall. Prices will not experience dramatic increases, but decreases are not predicted either. Seller’s expectations have been reset and it is a great time to buy real estate in Toronto.