If you had asked prospective home buyers in March how they felt about their real estate search, you’d likely receive an exasperated sigh.
At the time — which, in hindsight, we know was the market’s peak — unaffordable Toronto housing was the topic du jour. There were whispers of 20-plus-participant bidding wars, and headlines about homes selling for literally hundreds of thousands of dollars over-asking. The Toronto Real Estate Board (TREB) revealed recently that home prices had surged 33 per cent in the course of a year, with detached houses now commanding an average of $1.5 million — surpassing even Vancouver.
The latter drew the concern of federal Finance Minister Bill Morneau, who called in the troops — his provincial counterpart Charles Sousa and Toronto Mayor John Tory — to discuss just what to do about runaway Toronto home prices.
Then came the Ontario Fair Housing Plan, a 13-part package of measures cooked up by the provincial Liberals to calm conditions in the Golden Horseshoe. It came chock-full of game changers, such as new rent caps for landlords, a crackdown on property scalpers, and Ontario’s own foreign buyer’s tax.
While the data is still out on the latter, the psychological scales were effectively tipped. Those who had mulled over selling listed in a hurry. Buyers, hoping for greener pastures to come, sidelined their home searches.
Combined, it all led to one of the fastest sales declines — down 35 per cent last month — and price devaluations seen in recent memory in the Toronto market.
That may sound scary, but it poses the question — is this the opportunity Toronto buyers have been waiting for? Here are five truths about the Toronto market buyers need to keep in mind.
Truth 1: You can’t time the market
While the golden rule of stocks is to buy low and sell high, “beating” the market isn’t a mindset that serves most home buyers. And while it’s natural to want to take a savvy approach to your largest-ever financial transaction, it’s important to remember that real estate is an investment with a long-term horizon.
That’s why most real estate experts recommend renting if you foresee yourself living in your home for less than five years — not only are those who sell sooner vulnerable to fluctuating market conditions, they’re walloped with high transaction costs, such as land transfer tax and listing agent fees, that can take a big bite out of their equity.
Lauren Haw, broker of record at Zoocasa Realty, says to envision the market as a series of peaks and valleys – the majority of buyers will make their move somewhere along the way up or down.
“You can’t time the market, and that’s important to keep in mind right now,” says Haw. “People didn’t intend to buy at the peak. We know we are on the way down, but we don’t know if we are already at the bottom. Or are we already on our way back up? Real estate market changes are instantaneous — the whole market can change in two weeks.”
Truth 2: Prices have dropped, but homes are still expensive
While home prices have softened since the implementation of the Fair Housing Plan, the reality is you’ll still shell out over a million dollars for a house and over $600,000 for a townhouse in Toronto.
As well, home types that are traditionally priced more affordably are becoming less so. The average townhouse now costs $23,543 more than in March, while condos are still on an upward tear, appreciating 23.2 per cent year over year to an average of $520,411.
However, purchasing a house (at an average of $1,355,234) became 13.8 per cent cheaper in September than in March — that’s $218,388 less out of pocket. For buyers with existing equity looking to move up in the market, that could present a sweeter spot of affordability than before.
Truth 3: Toronto is a buyer’s market
While prices may suggest otherwise, the numbers prove it’s better to be a buyer than a seller in today’s market. According to the latest report from the Canadian Real Estate Association, the surge of new listings that came to market in the early spring skewed the city’s new listings-to-sales ratio, lowering it below 40 per cent (a ratio between 40 per cent to 60 per cent is considered balanced territory, while above and below are considered sellers’ and buyers’ markets, respectively).
Simply put, buyers are enjoying greater choice, especially house hunters — there were 2,164 active detached listings in September, compared to just 987 for sale in March.
“The improvement in listings in September compared to a year earlier suggests that homeowners are anticipating an uptick in sales activity as we move through the fall,” stated Tim Syrianos, TREB’s president, in a release.
Haw concurs, saying today’s market is “perfectly balanced”, but that both buyers and sellers need to have realistic expectations about how today’s homes are priced.
“Sellers still think it’s a seller’s market and buyers think they’re going to find an amazing deal,” she says.
“The reality of the situation is that choice houses in choice neighbourhoods are still going for hundreds of thousands of dollars over asking, while average properties in good neighbourhoods sit on the market. A house that is appropriately priced and marketed well will sell.”
Truth 4: Seasoned agents stuck around
Another pitfall of an overly hot market is it’s seen as a cash cow, as newly minted agents seeking a quick buck come out of the woodwork. Haw says that changes rapidly when prices cool, leaving behind the more experienced agents who are willing to work through the market’s ups and downs.
“In a market like this, the value of an agent has never been more important,” she says. “A year ago, every listing was under a different name, reflecting the number of agents in the market, and listings were going to whoever would cut their commissions. We were seeing that across the board. These market conditions are great for working with established, knowledgeable agents, who will tell you the truth.”
Truth 5: It’ll soon be tougher to get a mortgage
For the past five years, interest rates have been at record lows — long enough for an entire generation of first-time buyers to think sub-2-per-cent mortgage rates are the norm. There’s now an expiration date on those super cheap borrowing costs, though, as new mortgage rules will soon hit the market, making it tougher for all borrowers to qualify for financing regardless of their down payment size.
Currently, only borrowers paying less than 20 per cent down on their mortgages must pass a “stress test”, qualifying at the Bank of Canada’s rate of 4.84 per cent. That will soon be the case for low-ratio borrowers, too, who may need to prove they can qualify for a mortgage at a full 2 per cent higher than their actual contract rate.
These changes are anticipated to take a 21-per-cent bite out of the average home buyer’s budget, says James Laird, president of mortgage brokerage CanWise Financial. "If implemented in their current form, the effects of these changes will be significant. When buyers can qualify for less mortgage financing, it puts significant downward pressure on home prices," Laird told HuffPost Canada. "Properties worth more than $1 million will be most affected by this change, which means that Toronto and Vancouver will be the geographies most impacted."
For those who currently have mortgage pre-approvals, these pending changes can put an extra layer of urgency on their home-buying decision, making now the time to make a move.