LACKIE: Choppy waters ahead for GTA real estate market
For months it has felt like the ground was shifting beneath us and now it seems even the deniers among us are finally willing to say it out loud.
One need only look to the wall-to-wall press coverage — the market has shifted! The bubble has burst! The end is nigh!
After two years of hot, hot, heat, declining month-over-month sales data now leaves it undeniable that our pandemic real estate boom has come to an abrupt conclusion.
Now it seems we find ourselves back in uncharted territory with enough at play that alarm is clearly warranted — ahem, a war in Europe, a stock market taking a beating, rampant inflation, an energy crisis, and interest rates on the rise — all the while having to reconcile what seem like clear warning signs with market forces and consumer behaviours that have consistently defied logic time and time again.
For all of the well-warranted doomsday predictions, there are still optimists who think the panic is overblown. And while it would be easy to label them oblivious denialists, or assume they’re just real estate agents or politicians with a vested interest in keeping things humming right along, it would be a mistake to jump to conclusions or even to simply assume that what lies ahead will be uniform or even.
But what is actually happening?
If you’re in the central core of Toronto, not much.
Sure, the buyer pool has shrunk, likely as a response to rising borrowing costs and uncertainty, but likely also market absorption following years of incredible volume and sales activity.
Fewer buyers and lessened competition is shaking out to mean sellers have lost some of their power and prices have stopped the meteoric rise. Underpricing with an offer night — once a sure-fire way to drive a bidding war and fetch top dollar — has increasingly revealed itself to be a gamble for sellers.
But make no mistake, good product is still moving and at a decent price, broadly speaking — though perhaps for less than sellers have come to expect.
Out of the city it’s looking like another story entirely.
Some of the markets that surged the fastest in the early days of the pandemic are now in free fall with market data showing prices in strong decline.
There are examples all over social media of homes that have seen their values drop by hundreds of thousands of dollars in a matter of weeks leaving once-happy buyers left wondering what to do as closing approaches.
A real estate lawyer friend of mine is currently trying to help clients north of the city figure out how to close on their new home next month with their current home unable to sell for even close to the price it was valued at back in March when they bought.
If they bail, they will forfeit their deposit and face almost certain litigation. But moving forward, best case scenario, will mean taking on costly bridge financing for a home that is already worth substantially less than what they paid.
In the weeks ahead we can expect to hear more stories like this, and more stories of buyers approaching sellers asking for an adjustment to the already agreed-upon sale price in order to close on their deals.
And while once that would have been completely outrageous and inconceivable, I expect we will also see sellers who entertain such requests if only because agreeing to less money will avoid a failed closing and the lengthy litigation it will take to recoup those losses.
Besides, the expression “blood from a stone” comes to mind.
As May winds down, we should expect that there will be another rate hike announced following the June meeting of the Bank of Canada — rumour has it we will see another 25 or 50 basis points.
And we should unfortunately expect more stories like the ones above — there are many who are going to feel the impacts of this market shift. I don’t even want to think about the preconstruction buyers who bought at the top of the market and are now on the hook for sale prices far above anything the bank will appraise.
But as infuriating as it may be to hear, an increasingly likely scenario is that what lies ahead will continue to be uneven — certain markets, housing types, and price points will reel while others will level off and carry right along.
Choppy waters lie ahead, no doubt. But as always, time will tell.
On Twitter: @brynnlackie