For industry veterans, memories of the early 90s might feel suddenly fresh -- a runaway market hits the wall, rates rise, prices drop, uncertainty abounds. Fast forward 30 years and here we are again.
But comparisons between the early 90s market and now are tricky, experts say. Too many variables have changed too dramatically -- the 90s GTA would be unrecognizable to us today.
The condo boom, for instance, transformed the skyline over that time, remaking the market entirely, says Elliott Taube. President of the newly launched EMT Consulting Inc., and industry veteran over decades at the helm of International Home Marketing Group, Taube was working in resale in the early 90s before moving to new builds.
“In those days, 70% to 80% of sales were low-rise, subdivision houses and 20% was high-rise condominium developments that had really just started,” Taube says.
“Now it’s the opposite -- 80% high-rise to 20% low-rise. So [the market is] investor-driven, and it’s the only way that it really gets done in our city. Other cities are ‘you build it and they will come’ and here, we have to sell it, so we can build it. It is a different market in that sense."
Immigration and population growth, a longstanding supply shortage, a pandemic buying frenzy that favoured low-rise, even rippling out to the suburbs and exurbs -- these market pressures aren’t mirrored by the 90s fallout, Taube says.
Rate Hike Cycle in the 90s ‘An Anomaly’
Hunter Milborne agrees: We’re not repeating history. The CEO of Milborne Group, a pre-construction consulting firm, remembers the early 90s collapse well -- he opened a for-profit project in 1989, and the next one didn’t land until 1994. In the interim, “we basically worked for banks and trust companies selling products that they’d taken back,” he says.
Milborne says he’s expecting interest rates to plateau soon, and a period of relative stability next year before dropping again, citing a Financial Post article reviewing the last six rate hike cycles over the past 30 years.
The cycle in the early 90s was “long and severe” and “an anomaly,” Milborne says. Averages over the last six cycles, as the Post article shows, suggest rates could tick downwards by September 2023. Meanwhile, he adds, high immigration and low housing supply are combining with construction issues and delays.
“Costs aren’t going to come down that fast because you’ve got labour shortages,” Milborne says. “And a lot of projects were deferred, so they’re not going to start, they’re not going to deliver. You’re going to have a continuing shortage -- and that means prices are going to go up, right?”
‘The Ones that are Going to Win in this Market’
The market was so hot in the late 80s, says Carol-Anne Schneider, agents would steal house keys from the office so no one else could show them. This was before lockboxes, she laughs.
A real estate secretary at the time, Schneider was in fact lured to get her realtor license by the market madness -- today she’s a real estate broker with Rexig Realty Investment Group Ltd. and a McGillivray Trusted Agent.
“There were buyers lined up outside the real estate offices every day, and a house would come in, and it would be sold in-house -- nobody would even get a chance for it on MLS,” Schneider says of the late 80s. “But then it died overnight.”
Today, Schneider is seeing a return of conditional offers, and a drop in investor buyers, although she thinks they’ll be back soon. But she’s still receiving multiple offers on her listings -- priced aggressively, she notes -- and there are still winners in this market. If financing is locked down, she says, it’s actually an ideal time to upgrade.
“If your numbers work out, and you can afford the higher interest rate, then why wouldn’t you buy that dream home right now?” Schneider says. “Although you feel like your house has lost value -- has it really? No, it just lost that cream that was on the top … that was not sustainable in any market. The people that can afford these interest rates today are the ones that are going to win in this market. And those are the people that won in the 1990s.”
90s Trends Returning
Vendor take-back mortgages, rent-to-own agreements, government land leases -- Schneider recalls the creative solutions from 30 years ago and says they might show up again in this market. And there are other trends from the 90s market recovery that are likely to return, she says.
Schneider’s seeing signs -- citing top brokers and teams listed by the Toronto Regional Real Estate Board -- that turnover and fallout will be high in outskirt communities outside the GTA. And she’s getting downgrade calls as well -- recent buyers with variable mortgages can’t afford to lock in at a fixed rate, so they are looking to move.
“They realized … to sell at today’s price, they would still be able to comfortably buy something else,” Schneider says. “Not a lateral [move] -- not having all the same features unless they were to change location -- but having enough money then to be able to put them in a way better financial situation.”
Price Drops Still to Come, but Faster Recovery Likely
The 90s were “a lost decade” that traumatized an older generation, says Ron Butler, mortgage broker with Butler Mortgage. He expects prices to continue falling, but believes recovery will be faster than the 90s -- both the 2008 global financial crisis and 2017 foreign buyer’s tax cooled the market, but prices bounced back within two years.
Variable mortgages and renewals will be big challenges next year, Butler predicts.
“The very worst situation is people who have alternative lending or private lenders, which are 75 to 80% one-year terms,” he says. “So I'll give you a simple number -- a year ago, those alternative mortgages for one-year terms were 2.99. Today, they’re being renewed for 7.19. And today, roughly one in four private mortgages is not even being renewed. The people who supplied the money are asking for the money back. Many are telling people, ‘We cannot renew your mortgage, you have to find a way to give us the money.’”
There is likely “another leg down” in home prices, Butler believes, so he advises owners to sell soon if they know they can’t swing the new rates. But ultimately, population growth should boost the turnaround.
“In all likelihood, the recovery will begin sooner,” Butler says. “It was almost six years before prices even started going up in 1990. But if you bring in 500,000 people a year [to Canada], and 49% of them came to Ontario -- that’s 250,000 people a year into Ontario. That puts an eventual floor under prices in the next two to three years.”