Here we go again.
For every Twitter thread or Instagram Reel composed by a self-appointed soothsayer who is, in their own mind at least, an expert on economics or real estate or consumer behaviour is a human being still resisting the biggest life lesson forced upon me since the early days of the pandemic: Few among us have a single clue what comes next, at best we are working with educated guesses so perhaps we could all stay humble.
To the real estate bulls, Toronto real estate is a force to be reckoned with, propped up by chronic insufficiency thanks to municipalities choking development all while financialized real estate and record immigration keeps demand strong. Toronto is a beast; can’t stop, won’t stop.
What we actually know at this point:
Fixed rates are up. Five-year offerings are now hovering around 6% when just weeks ago some banks were offering five-year fixed with a 4 out front. Those blue skies that seem to have fuelled the spring market got awfully dark awfully quickly.
Showings and offer registrations reacted almost immediately to June rate hike and dropped off precipitously. There were a number of failed offer nights last week, even on great houses that had strong interest. Buyers are clearly nervous.
“Higher for longer” is the new refrain. Rates as high as they are and sitting there will bring pain, particularly for the overleveraged. There are many who have been hanging on for dear life, waiting for the rates to come down, who are now wondering how they will make it.
Some economists are predicting that we’re looking at rates ticking down no sooner than next spring. Now no one is even considering a reduction in 2023.
Extended amortizations have absorbed a huge amount of the turbulence and have given the appearance of market strength and resilience, but renewals and unemployment will be the curveballs.
My feeling, based on the conversations I am having with clients and colleagues, is that even if prices dip again the move-up buyers who tend to drive the market will be ok, they will just be impatiently wondering where the inventory went. They will come back.
Downsizers sitting on a ton of equity will be equally buffered.
The first-time home buyers will have to sit tight or expand into a bigger, more expensive rental that will eat away at more of their savings for down payment but if and when prices ever soften, they may find their moment.
It is the overleveraged and the speculators who will be in the toughest spot in the near term. Needing to sell but needing the market to get more favourable to find an off ramp to cash out and walk away with some actual cash.
The one thing I would bet the proverbial house on is that we are heading into what will prove to be a very quiet summer. What sits on the other side is anyone’s guess.
