During the real estate run-up of the past two-and-a-half years, it would be hard to even guess how many printed words were dedicated to exploring the drivers of the momentum.
Once people found themselves endlessly locked down at home with their families, many realized they wanted more from their homes. Which surely must have been what drove the buyers to mask-up and emerge from quarantine.
And thus the boom was born.
Even more impactful and yet somehow less widely discussed has been the outsized role the historically low interest rates played, particularly in fuelling speculation in the marketplace and driving the competition that drove prices to ludicrous heights.
No, no, we were told that it was pent-up buyer demand crashing into low supply. It just happened to coalesce all at once. What we were witnessing was natural market forces at work.
The October sales figures released last week by the Toronto Regional Real Estate Board were chilly indeed.
Average sale prices have continued their descent, now down almost 18% from last winter’s peak with transactions almost half of what they were last October. And that’s unfortunately the good news; most areas outside of the GTA are faring much worse.
Canadian consumer confidence is in the pits, inflation is raging, and globally the economic forecasts look grim.
In spite of the Bank of Canada’s October rate hike being slightly gentler than most had anticipated, all signs point to the fact there will be more to come. Our benchmark interest rate is already higher than any (actual) expert ever believed it could go
The deep-rooted belief that Toronto real estate only ever goes up is being put to the test.
This is looking more like a real estate “crash” than a “correction.” And yet prices are remaining reasonably sticky, particularly in the central core.
People are transacting. Deals may be down by half but they are still happening, even with every indication pointing to the fact that prices will continue to decline, particularly if and when homeowners find themselves unable to carry their debtload at these new rates and need to sell.
So how is the market still moving? Well, I am pretty sure this is closer to what a market tends to look like when consumers are being driven solely by actual needs and not FOMO.
Buyers are buying. And sellers are selling. The ones who need to at least. In some pockets of the city, multiple offers continue.
“Within the industry we talk about the 3D’s — death, divorce, and debt but there are less morbid reasons people will be moving. The formation or growth of families, children going to school, job changes — these are all triggers that result in someone needing to buy or sell a home. At any given moment, there will always be people in each of these situations, which will be the reason the market will not grind to a complete halt.”
This is what it looks like when the speculators tap out. What lies ahead will be the true market forces at work.
