26 Jul 2022
Week 125: Is an Historic Market Correction Coming our way?
Week 125: Is an Historic Market Correction Coming our way?
RBC did an excellent job of scaring the isht out of Canadians again by releasing this report late last week.
Many outlets ran with the headline, which made people believe that RBC predicted a 42% drop in price over the next year.
(oh, and I was quoted in The Star this morning about the increased number of listing cancellations)
Remember, when you’re reading articles about the real estate market, you always need to consider two things;
- How broad an area are they referencing
- Are they talking about sales or prices
The headline immediately grabs your attention in this case, assuming they’re talking about a 42% price drop. But in reality, we’re talking about a dramatic reduction in SALES volume and a less dramatic drop in prices.
Also, we’re talking about Canada as a whole here. According to the RBC report,
BC and Ontario are taking the brunt of the potential damage.
But if you continue to read the report, their long-term views are still quite bullish (beyond mid-2023)
(please subscribe to my new YouTube Channel here, where I go over all of these reports in more detail)
Urban Markets: Downtown & Surrounding Areas
House Average Price: $1,447,260
House Median Price: $1,280,000
570 Active Listings
43 Firm Sales This Week
Months of Inventory (MoI) ~ 1.77
Average Days on Market ~ 14.26
Condo Average Price: $839,169
Condo Median Price: $763,500
1783 Active Listings
78 Firm Sales This Week
MoI ~ 2.16
Average Days on Market (DOM) ~ 21.82
What I also find funny is this statement.
“We’d argue the unfolding downturn should be seen as a welcome cool-down following a two-year long frenzy that put a huge financial burden on many new homeowners and made ownership dreams harder to achieve,” said Hogue.
A welcome cool down? I’m not sure anyone has “welcomed” this situation.
It would be a “welcome cooldown” if places were more affordable for Buyers. There’s nothing welcome about that situation.
Some homes are less expensive today than earlier this year, but they’re certainly not more affordable. With interest rates higher, mortgages are even more costly and harder to get.
And we can’t forget about what this is doing to the rental market. Where do you think those would-be buyers are going? The rental market is insane, with prices outpacing any interest rate increase.
Inflation is a big problem now that I admit I was entirely wrong about last year.
I was fully convinced that it would be transitory. Many top-level economists, mortgage professionals, and real estate professionals believed the same.
We thought that once shipping routes were reestablished, the backlog at the ports was cleared, and manufacturing got back to normal, all of the supply issues that jacked prices in the first place would normalize.
Urban North: Rosedale, Deer Park, Moore Park, Forest Hill, & Lawrence Park
House Average Price: $2,464,000
House Median Price: $1,700,000
134 Active Listings
5 Firm Sales This Week
MoI ~ 2.30
Average Days on Market ~ 27.80
Condo Average Price: $913,500
Condo Median Price: $853,000
202 Active Listings
5 Firm Sales This Week
MoI ~ 2.43
Average Days on Market ~ 19.8
But Russia’s invasion of Ukraine and China’s extended lockdowns have cemented this would-be short-term inflationary period into a longer-term pain in the ass for many.
So what do you do now?
Well, suppose you’re leveraged and have investment properties. In that case, you’re probably doing okay because the rental market is moving forward at such a fast pace that you’re laughing at these interest rate increases, especially if you’re on a fixed payment mortgage without fluctuating payments.
The condo market will be fully supported by the rental market. We won’t see any significant price corrections in condo land going forward, especially in downtown Toronto and surrounding urban communities.
Again, the most significant opportunities exist in the Freehold and Condo Assignment markets. Fantastic deals are available there that are in a position for cash flow.
2022 and early 2023 will be supported mainly by cash-heavy and opportunistic mom-and-pop investors.
Leaside, Davisville, Yonge & Eglinton
House Average Price: $1,868,000
House Median Price: $1,950,000
51 Active Listings
5 Firm Sales This Week
Months of Inventory (MoI) ~ 1.46
Average Days on Market ~ 16.4
Condo Average Price: $875,099
Condo Median Price: $818,888
178 Active Listings
9 Firm Sales This Week
MoI ~ 2.53
Average Days on Market ~ 24.56
If you’re sitting on any cash (don’t draw from your home equity unless you have a ton of room), you need to be in the market right now, buying assignment condos and lower-end houses.
You’ll get high-paying tenants and be able to pad your retirement.
There’s a massive opportunity to create wealth for your future self.
Another fantastic opportunity that NOBODY is talking about right now is multiplex housing on residential streets.
In early June, I was tapped to work with a group at the Urban Land Institute. Our job was to create a set of recommendations allowing more as-of-right density in Toronto’s communities. (continued below chart)
Birch Cliff
House Average Price: $1,821,000
House Median Price: $1,821,000
30 Active Listings
1 Firm Sales This Week
Months of Inventory (MoI) ~ 1.50
Average Days on Market ~ 20
The EHON or Expanding Housing Options in Neighbourhoods is an initiative by the City of Toronto to allow homeowners to create their own housing more easily. We recommended the city wavie extremely prohibitive development charges for up to 4 units on a single residential lot.
Guess what? The city of Toronto adopted all of our recommendations.
More specifically
- Should a homeowner decide to add a second, third or fourth unit to an existing dwelling, they are exempt from paying development charges on the second, third and fourth units; (saving your hundreds of thousands)
- Should a homeowner demolish an existing single-unit home and build up to four new units on that same lot, the rebuilt first unit would not be subject to development charges, and neither will be the second, third or fourth unit; (saving your hundreds of thousands)
- Should a homeowner decide to build a new fourplex on a lot that did not have any residential units, the first unit would be subject to development charges. Still, the second, third and fourth units will be exempt from those charges. (saving your hundreds of thousands)
So with these changes, property owners and buyers of single residential homes can now, more freely, build rental units to create more housing. Not only can you now make more housing for Toronto, but you can create a safe, secure, and highly profitable new addition to your real estate portfolio.
A massive opportunity that you must consider. Especially in a market like this where prices are depressed.
Kingston Rd Corridor to Highland Creek
House Average Price: $1,157,323
House Median Price: $1,189,030
99 Active Listings
7 Firm Sales This Week
Months of Inventory (MoI) ~ 1.82
Average Days on Market ~ 16.88
Condo Average Price: $680,569
Condo Median Price: $748,500
66 Active Listings
4 Firm Sales This Week
MoI ~ 2.05
Average Days on Market ~ 14DoM
Buyers, remember to not fully max out on your purchases as the rest of the year and early 2023 will be more expensive for you. Leave a little gas in the tank when making offers.
Sellers, Do NOT go to market now. There’s no point. Unless you have a perfect home in North Riverdale or another Urban community of Toronto, you won’t get the price you want.
Hold for another year and reassess quarterly to see if the market is where it needs to be for you to get the return you deserve.
(don’t forget to subscribe to my new YouTube Channel here, where I go over all of these reports in more detail)
Have a terrific Tuesday, and I’ll see you next week 🙂
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That’s all for today; thanks so much for your energy and attention. If you want some clarity on the market and your specific situation, please DM, comment below or email Ara@thespringteam.ca.
