OPINION: Media Commentary on the State of the Real Estate Market
Tuesday Jan 10th, 2023
Over the last few months, the media has consistently shed a negative light on the real estate market in Toronto and across the country.
"The Toronto real estate market is in a bubble."
"The Toronto real estate market is crashing."
"Prices have rapidly declined."
While some of these statements are undoubtedly fact-based, others are predictions and opinions.
However, the media does a stellar job downplaying that we are returning to pre-pandemic levels and stabilizing after peaked market activity. Home prices have indeed declined steadily since the Spring of 2022. But does this come as a surprise after rising rates came face-to-face with accelerated growth?
COVID produced unprecedented real estate activity predominately due to historically low interest rates. As a result, we saw record-breaking home prices in 2021 and the first quarter of 2022. Previously, Toronto's real estate prices, not unlike other major cities, were on an upward trajectory. To a considerable extent, the root of this was a persistent imbalance of supply versus demand. Now the Bank of Canada is reversing its actions fast and furiously with multiple rate hikes in a short period, and it's obviously impacting the market.
In the TRREB December 2022 Market Watch Report, Chief Market Analyst Jason Mercer stated that the average home selling price in 2022 was up 8.6% compared to 2021. This growth correlates to the strong start of the year. However, I didn't see this insight in one media headline following the release of this report. We must look at all the facts - not just the negative headlines we read in the media.
The onset of the pandemic was in the first quarter of 2020. To accurately analyze today's pricing to pre-pandemic levels, we must compare 2022 market data with 2019. The composite benchmark price of a home in the GTA in December 2022 was $1,081,400, up from $792,500 in December 2019. Home prices need to plunge 36.5% to return to 2019 prices.
As prices decline, 2023 may provide the opportunity for buyers waiting on the sidelines. It will come down to balancing their priorities with the higher cost of borrowing - the highest it has been since 2008. Furthermore, the surging rental prices in Toronto create another reason to rethink buying. With 300,000 new immigrants expected in Canada this year and the two-year prohibition on foreign investment in play, rentals will become few and expensive. If interest rates begin softening sooner rather than later, purchasing a home this year may prove beneficial. But considering that a shortage of inventory - a problem that persists - coupled with buyer demand is the perfect storm for accelerated growth, will the cycle begin again?
Despite the gloomy outlook, the Canadian job market is still on fire. With over 100,000 Canadian jobs added in December, BMO sees another rate hike coming at January's end to stave off consumer confidence. There is also talk that the Bank of Canada will increase rates by a quarter of a basis point each in January and March. Conceivably this will be the end of it.
What's my point? Real estate is a market. Perhaps not as volatile as others, but it will have its ups and downs. A practical saying I recall from my early high school days went like this ... "don't wait to buy real estate, buy real estate and wait." This market is not for property flippers, nor immediate investment returns, however, evidence suggests that you will come out ahead in time. Buy real estate and wait.
I anticipate that 2023 will show signs of a stabilizing real estate market. Buyers and sellers will gain more confidence to make the move they've been considering or feel assured about their investments. A balanced market will begin revealing itself. Buyers will not be pressured by bidding wars, and sellers will have less property competition while still seeing gains.
- If you are interested in the real estate market, check out the TRREB Market Watch Report each month or ask your Realtor.
- Take media viewpoints with a grain of salt and dig into the detail for yourself. We all know the media use words and headlines to attract views and readership.
- Most importantly, when comparing post-pandemic pricing, be sure to look at pre-pandemic pricing and real estate trends over the last decade.
- Remember that what is transpiring now is correcting the remarkable activity over the past few years. We're getting to where we should be and on more stable ground - a better place for everyone.