2017 is NOT comparable to 80s. Stop waiting for Toronto Real Estate Prices to Tumble. By Perrii Muthuraman

The tax on foreign buyers, coupled with rent controls and other proposed measures, started to have an impact on home price growth and sales activity in GTA.  When were similar measures introduced, not long ago, how Vancouver reacted? Vancouver home prices dropped about three percent after the tax was introduced. However, prices started to rebound in January 2017 and are now close to their peak.

Last time when correction occurred in GTA in 2008, though it was for a very brief period only, prices of condos, semi-detached homes and townhouses fell by 4 to 5% and detached home values plunged much deeper, up to 25%. These figures are based on the TREB statistics. However, I don’t anticipate any huge drop for detached homes this time.

The present situation as far as I know is that the market has softened in many pockets of GTA. It takes little longer to sell but still in few places multiple offers are presented.  A clear picture will emerge when TREB announces the figures for May during the first week of June 2017.

Did anything change during recent years?

Yes. Between 2014 and 2016 roughly 30 percent owned more than one residential property in the Greater Toronto and Hamilton. Fitch ratings cited this number (30%) quoting Ontario Ministry of Finance and MPAC Property Assessment. It implies that more and more people own rental properties. The rental market is also very tight and the vacancy rate is too low (often 1 or 2% only). Interest rates are not expected to go up significantly in the next few years. In such a scenario, many people may continue to hold the properties as rental properties and may not bring it to a market, particularly if the prices are depressing.

Interest rates continue to remain stable and low. This has to be contrasted with the roller coaster situation of the 1980s and 1990s. Interest rate reached the peak of 21.03% during August 1981. Now it hovers around 2% only.

Research released by TREB recently suggested that Ontario Government’s 16 measures may not do much to cool off Toronto’s housing market. According to TREB’s survey, only 2.2 percent of homes sold in Toronto in 2016 went to foreign buyers, with that number rising slightly to 2.6 percent in the first quarter of 2017.

The TREB survey also suggested house-flipping is a reality in Toronto’s housing market, though it may not be as pervasive as some observers think. Some 5 per cent of transactions in 2016 involved homes that had previously changed hands within a year. That number jumped to 7 percent in the first quarter of 2017.

As pointed by someone, Canada has the highest per-capita immigration rate in all of the developed world.  And those immigrants do not desire a 1970’s single bedroom apartment, they desire a better living place. The growth of population through immigration is phenomenal. This alone will ensure that prices retrace quickly within months when they fall.  Market forces are presently controlled by fear, uncertainty, and doubts of market participants. Retracement has quickly happened in GTA in 2008 and will happen again in 2017 or 2018. Of course, with the ever increasing population, need for shelter – owning or renting – will never go away.

Those who wait indefinitely looking for a bottom price will be disappointed. What really matters is the time in the market and not timing the market.

Actionable points:

Don’t speculate in this market.

Buy or sell if you NEED a place or to move away.

Otherwise, Think long term, (Minimum 3 to 5 years here), to make $$$$s.

If prices drop, treat it as a buying opportunity, if it suits you otherwise.

When you hold the property, rent it out. And it requires certain special skills, particularly for identifying the right tenants, complying all the complex provisions of renters’ friendly law.

Consult Perrii (Phone: 416 473 6100 or email: perrii@perrii.com) to discuss your personal circumstances.

 

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