Agents of Change: A Red Hot Housing Market is Testing Real Estate Professionals
Few sectors are more thoroughly framed by data, analytics, statistics, and opinions, than residential real estate. Over the past several months, as buyer demand and prices have soared — especially in the Greater Toronto Area — these figures have been flying fast and furious.
Given the record sales prices, volumes, and expectations that have characterized 2021, it would be easy to conclude that real estate agents and brokers are revelling in a market where the average home in the GTA is on the market for just 10 days, and the average sale is 116% over listing price. The reality, however, is quite the opposite.
It’s not that the numbers are lying, but they do present a very one-dimensional picture of this moment in the residential real estate business. And contrary to what you might assume, most real estate professionals heaved a small sigh of relief when April’s market data showed signs of moderation from the incendiary March levels.
First – and above all else – most agents truly value their role as “trusted advisors” on both the buy and sell side of a transaction. In the heat of a white-hot market we have experienced, that role has sometimes been strained.
While agents understand all the factors that underpin the business of buying or selling a house, they are equally attuned to the emotional considerations as well. Individuals are buying or selling a home, not just their largest single investment. And the true “art of the deal” is to align those two elements as closely as possible.
Bear in mind, the emotional significance of “home,” a safe space in which to live and work and nurture family, has been greatly amplified by the pandemic.
The very personal nature of buying or selling a home typically results in a long-term relationship – or at least that’s the desired outcome. In a very intense and competitive market, when houses are sold almost as soon as they are listed, that long-term relationship doesn’t always get to fully develop. Of course, trust is required more than ever in the face of complex conditions, and pressure to buy or sell to optimize outcomes in a fast-moving market. But in such cases, the transactional tends to eclipse the personal.
To be clear, April was not exactly a bust. It was, however, a period in which the market – while still breaking records – showed some signs of stabilizing. Relatively low interest rates, pent up demand, broad consumer confidence in a post-COVID recovery continued to drive it forward, but the tone and pace was slightly more sustainable. Sales volumes were over 36 per cent higher than the 10-year average and four times higher than April 2020, yet they were down almost 13 per cent from March. New listings were 8.4 per cent lower, and prices were steady in a month where they usually show a seasonal increase over the previous months.
Numbers from the earliest days of May suggest that the GTA market may, in fact, sustain some equilibrium – at least for now. This relative balance represents an important psychological threshold. It addresses the pervasive supply deficit mindset and alleviates some of the extreme pressure to transact.
As more Canadians are vaccinated and the end of lockdowns wavers on the horizon, the acute sense of urgency to own and control a “safe space” is modulated. That perception quickly becomes a reality: If the market participants perceive that there is new room to breathe, it cools the ambient temperature of the market down by several degrees.
Of particular note, the clear evidence that the residential real estate market will organically self-regulate – as it has historically – has muted some of the recent calls for direct government intervention.
At the same time, this provides some space for the broader conversations that need to take place about the urban housing supply shortage, a reality that is contributing to such exuberant market cycles. In the present words of CIBC deputy chief economist, Benjamin Tal, there is an inclination to use demand tools to deal with supply issues in the Canadian housing market.
Without question, lack of supply is an increasingly pressing policy and zoning issue that needs to be addressed by all three levels of government – all the more given the housing needs of new Canadians, hundreds of thousands of whom will arrive in the GTA in 2022 and beyond. If these supply issues are not proactively addressed, this cycle will almost certainly be repeated.
Meanwhile, the subject of interest rates is, predictably, a bit of a tricky one. The Bank of Canada has committed to contain borrowing costs as the domestic economy finds its feet in the aftermath of the pandemic. However, a stronger bond market means that interest rates from major lenders have started to creep up. Given that many households are now at the upper range of their housing debt threshold, that should be a natural limit on housing prices.
As with anything, it’s impossible to accurately time the residential real estate market. There are always unforeseen agendas and circumstances with which to contend. For now, however, agents and brokers can double down on building the trusted relationships that serve everyone.
The only certainty as we move forward through the seasonal spring market? There will be no shortage of data, analytics, and statistics at every turn.
This article was produced in partnership with STOREYS Custom Studio.