Thursday November 13, 2008

What does the near future hold?

Part of the reason for this blog posting is to try to correct some of the misconceptions about the Toronto real estate market since I find the reporting in the media to be anywhere from misleading to simply incorrect. The media hopefully gets its information from the same sources as I do, but the message too frequently gets lost in the translation . (understatement #1)

An example being a recent article in the Globe and Mail titled Homeowners new reality: Youre suddenly poorer (click for link) in which too little detail is connected to the numbers. They refer to info from CREA (Canadian Real Estate Association) stating that existing home sales will drop by 12 % from the previous year, a decline which will moderate to 3% in 2009. This is referring to the volume of sales, not prices. In our world of sound bites, this statistic often gets confused for a price drop.  The article mentions properties in Vancouver, a city which has benefitted from sizzling price increases for years.

Now that there is an adjustment, should they really be so worried? Various other markets in the country experienced unsustainable gains in recent years. Markets tend to adjust themselves in both directions. In any case, are we supposed form our opinions on Canada-wide data? A downturn or upswing in prices in Windsor or Quebec city does not affect price or trends on my street in Toronto.

Speaking of Toronto, the price increases year to year have been fairly reserved with the exception of a few favourite neighbourhoods. At this point in time, many of the houses sitting on the market could have sold in the recent sellers market. In certain areas Ive seen multiple listings of the mediocre new builds. You know the ones designed by the builder when they should have hired a decent architect. These houses are often of borderline quality and questionable aesthetic. (understatement #2)  Point being, decent houses are still selling at good prices although they are taking longer to sell.

Breaking down the statistics for September & October and Ive concluded that there havent been enough sales to provide reliable information on the price trends in downtown Toronto. The year-to-date statistics are still up slightly from 2007. Dont get me wrong. Sales are down. Prices are receding slightly but to base a trend on 28 freehold sales (C02, October 2008 TREB Stratus) in a month could easily mislead.

We should also consider house pricing strategy. Many houses these days are selling under asking. Listing a house in this type of market, the asking price should consider anticipate an offer at or slightly below the asking price. Whereas in the spring, in the recent sellers market, a decent house might fetch over asking. The latter property could be priced lower (more aggressively) because the seller expected more potential offers.

In any case, the average price of houses in downtown Toronto should not drop unless the supply increases significantly. It appears very few people are in a situation where they are forced to sell. If they dont get what they want they are more likely to suspend the listing and wait until the new year. CMHC is forecasting a price increase in the GTA of 2.6% in 2008 and 1.8% in 2009. (CMHC GTA Outlook, November 2008) The share of mortgages in arrears is near its most moderate level since 1990. (CMHC National Outlook, November 2008)

As a buyer, consider these points: interest rates are still close to 50 year lows. If you are interested in a house or a condo, the overall lack consumer confidence could benefit you.  It has been years since a buyer has been able to negotiate a price with conditions. Given that it is still challenging to find the right home in the right place, you might miss out if you dont try. After all, its an investment you will live in.

I wont even start to explain the variations between our market and that of our American neighbours. Safe to say there are massive differences in the way mortgages are handled. (and we can leave it that way)

If you would like statistics pertaining to your particular area, let me know. (Ill let you interpret them)


Marc Paill
Realtor in Toronto
info@urbanthink.ca