I want to take a few minutes to write out an answer to a question I get a lot. Actually it is the question that just about everyone asks me. The question is broad, vague and has many answers but I want to give a high level overview and hopefully you will come away with some new and interesting information.
The question I am referring to is "how is the real estate market doing?". My answer depends on a lot of things and especially on who you are but here are the basics. Many people have the idea that Realtors love a hot market, when houses sell as soon as they hit the market and there is competition for every listing. This is quite often not the case. Some realtors do like that but most of us work pretty much equally with buyers and sellers. For my sellers it is fantastic for them to get multiple offers and way over asking price on the 3rd day on market, but the problem is that those sellers then become buyers looking for a place to move to. They become one of 17 offers on the house they love and are forced to go higher than they would like, only to lose out to someone willing to bid even higher. This is frustrating for the buyers and for their realtor who has to do all the preliminary due diligence even if the chance of winning the property is low.
Others may differ with me on this, but I prefer a balanced market. In a balanced market homes take longer to sell, often 20-30 days. This gives time for the marketing we do to really spread and attract the attention to the listed home. Not the attention of buyers who just desperately need some place to live and will pay whatever it takes to get it, but the attention of buyers who actually love the home and have calculated its value to them. Negotiations tend to be longer and more complex but both buyer and seller come away with the feeling that they got a fair deal.
In April of this year there were 32.4 percent fewer sales than the previous year and 21.7 percent fewer sales than the 10 year average. Prices were down too from their feverish highs last April, 10.5 percent for freehold properties and ~1 percent for condos. New listings took a hit, but not as much as the sales did and this resulted in more inventory. The average number of days on the market nearly doubled from last year from 14 days to 26 days for a freehold home. This gives buyers a chance to spend more time looking at a potential home, booking 2-3 showings before making an offer. The sudden change can be frustrating for sellers who haven't come to terms with the changing market but they are still getting good value for their properties - plus when they become buyers, they also benefit from lower prices and more choice.
So what has caused this change? Well there are many factors. The respective influence of each of these factors will vary depending on who you talk to but I believe the primary factor is psychological. During the 2016-17 real estate gold rush people were buying properties because they were afraid they would be priced out of the market if they waited. Investors were paying way to much for tear downs because they wanted to fix them up and flip them with insane profits, parents were buying houses that could be passed on to their children fearing that home ownership would be a distant memory by the time their kids grew up, and first time buyers were throwing caution to the wind and maxing out their mortgage pre-approvals just to get into the market. All that changed when the media attention turned to the risk of a housing bubble and the government stepped in to limit foreign investment and introduce a stress test on mortgages. Protections for tenants also cut into the profits of landlord investors who were taking advantage of limited rental supply to raise prices and suddenly the numbers stopped making sense for them. A new mortgage stress test protected buyers from over extending themselves in the event of an interest rate hike, but also cut off about 20% of their purchasing power.
Interest rate hikes get their own paragraph because it is such an important topic. In 2015 the Bank of Canada reduced the bank rate to .75%. It is almost like people imagined the rate would stay low forever and forgot what massive implications even a small rate increase could have on a large mortgage. The rate remained this low until July of 2017, just a few months after the introduction of the Ontario Fair Housing Plan which came into effect on April 20, 2017, when the Bank of Canada raised Bank Rate by a quarter point to an even 1.00%. Sales started to drop off as people realized that this would be the start of a new trend and that it would be wise to leave some room for future rate hikes. The next one hit just two months later in September of 2017 and we started hearing about upcoming legislation that would impose a stress test on all buyers, not just those with less than 20% as a downpayment. January 1, 2018 brought that legislation into effect followed closely by another rate hike, bringing the Bank Rate to 1.25%, and buyers started to feel the pinch of this imposed responsible spending measure. We saw a relatively heated February as buyers who had been pre-approved before the deadline rushed to close a deal before their pre-approval expired but then the spring market seemed to die off and has remained relatively balanced ever since.
So how is the market doing? I think the market is great! It is a welcome relief for buyers and sellers aren't getting what they might have dreamed of, but they are still getting what they hoped for. My job is more interesting as I need to work harder to advertise listings effectively and buyers tend to not be as motivated but my goal is to help people get into the right home and I have found that the satisfaction of both buyers and sellers is higher in a balanced market. I get to do more negotiation, saving my clients money and that's what what I love doing! Feel free to give me a shout if you want a more detailed analysis for your neighbourhood or home!