We Can’t Afford To Sell! Today’s Market Dilemma
As everyone in Toronto knows the 2016 housing market was a banner year smashing all kinds of records. We saw massive price increases upwards of 20%, record low inventory levels, huge investor based demand and a tremendous increase in foreign buyer activity.
As a broker for over 25 years I’ve seen it all…….except for what’s going on now. All around the world the residential markets had grown, peaked and corrected. Even the venerable Vancouver market was poised for continuous growth with the cash train from China chugging East….until the BC government shut that down. This tax is a boon for Toronto in addition to our discounted currency, ever growing fear in the financial markets, cheap mortgages and of course the new leadership of our neighbours to the South. It’s for these reasons that I see Toronto continuing this growth. To be clear and transparent, I’ve always been a housing bull from the early 1990’s. I’ve become a bit more cautious as I’ve seen prices escalate the way they have and had been concerned that perhaps we’re just like every other country, city, town, province around the world that saw these cyclical up and downturns.
As a fairly conservative person I’ve found that the contrarian approach to investing and buying real estate was the way to go. I recall an article in one of the major Toronto newspapers in 1996 outlining that “buying a home in Toronto would be the biggest financial mistake one could make”…..For those of us that remember the mid 90’s it was the best year to purchase a home since 1985 based on price averages. There have been many people I know that are waiting for a correction in our market and these same people have been waiting for years and now many are just priced out of the marketplace. This isn’t just in Toronto but across the GTA as the Toronto price push has moved prospective home buyers into the periphery of the city.
It’s now my opinion that this marketplace (prices) will continue to grow. Many of the big brokerage houses are indicating double digit gains. It really is anyone’s guess how much prices will actually go up so I’m not going to throw my opinions into the pot. I look at the fundamentals of the surroundings in our great city. So let’s look at this.
Starting with foreign ownership. Media sources have been downplaying the actual numbers of foreign buyers that are buying in our city. I have no way at looking at the big picture, but I can tell you that my brokerage has seen over 30% of our listings having been sold to buyers that are not occupying the homes or living in Toronto for that matter. All these sales have set record sales prices and have closed without incident.
The Canadian dollar while appreciating over the last few months is still weak in comparison to many currencies. This provides added strength to the foreign buyers looking at Canada or Toronto in particular to make a real estate investment decision. Depending upon potential protectionist policies to our South the dollar may weaken providing greater incentive for these overseas investors.
The Stock market has breached the 20,000 Dow level. I’m definitely not a financial market investment guru but when the Dow crossed 20,000 I liquidated my portfolio and comfortably sitting in cash. My investment broker whom I love and trust dearly wanted me to stay invested as do many of the smart financial people advise. I look at these markets as unsustainable in the short term (1 year). It’s been 10 years of straight growth and in my opinion the world isn’t that much better then a decade ago. Still lots of leverage out there that seems to be inflating every asset class…including real estate. More of my client base prefers to be invested in a hard asset like real estate that they can touch and feel.
Interest rates have increased to reflect the increase in the bond yields but our local banks are still offering competitive rates for 5 year fixed and variable residential mortgages. A few of the companies that I work with are offering 2.75% 5 year fixed rates and prime -50 basis points on their variables. The caveat is these mortgage applicants require approvals based on posted mortgage rates that the banks offer which are typically 1 to 2 % higher.
Now the wildcard. President Trump seems to be implementing his election platforms swiftly and without delay. In doing this he’s upset many foreign countries and their investor base. We may find that Asian and Middle Eastern investors may bypass The United States and invest in peace loving Canada. This could create further demand for our real estate. Time will tell with this.
The biggest bull market indicator for Toronto housing is the ultra low inventory levels that we’re seeing. I meet potential sellers everyday and many have to make a move due to job transfers, financial troubles, matrimonial or health issues. The others are families that want to upsize or downsize. In the past I’ve found that my average client would like to spend $200,000 to $300,000 more then the current value of their home on the next purchase. To make a significant move upward in today’s market you would need $500,000 at minimum to stay in the same community. My downsizers can’t pocket enough capital differential for them to make sense of downsizing. This leaves us in a bottleneck where sellers can’t afford to sell as it doesn’t make sense for them to do so. The continued tightening of inventory will undoubtedly push prices higher in the short term.
We’re very fortunate to be living in a great city. I’m never fearful to walk on our streets, my girls enjoy great public schools, responsible government at least by world standards, amazing sports teams, world class dining and shopping and decent public transit.Th e world looks at us and sees the same benefits that we all do. I believe that they envy us and want to be here.