March 2017

By March 31, 2017

We’re only a few days into the “spring market” and it’s madness out there! If you’re a buyer right now, these are trying times. This is the most challenging market I’ve seen in all of my years in real estate. It’s not just the home-buying market that’s hyperactive – the craziness has spilled over to the condo market, as well. 

My colleagues and I have had several conversations about the current market. We can’t wrap our heads around the drastic price increases we’re seeing. Many are wondering how this will play out …

In previous years, I’ve told buyers to be patient and wait out the lack of inventory. This year is different. I can’t say – with certainty – that we’re going to see more listings anytime soon. Yes, we’ll see more supply, but will it meet the demand of all the new buyers waiting for the weather to warm up? Maybe.

How do you like these numbers? The average house ($1.5 M) is going up by more than $30,000 a month and the average condo ($500,000) is increasing in value by $7,000 a month. It is market madness.

Not only are these huge prices an indicator of an exploding market, so too is how fast these houses are selling. We’re seeing houses sell in 1 day, if not the day it hits the market (which gets reported as “0”). That’s right, zero days on market! FYI, in a so-called ‘balanced’ market, it would take an average of 120 days for a house to sell! So, we’re a long way from getting back to a stable market. I’ve been advocating that this market is NOT sustainable. Not so long ago the market churned like this … first-time buyers would purchase a house and live happily there for 4-5 years. Then they’d buy their next family home, and so on. When it was time for owners to downsize, there was actually a good selection of sizeable condos or smaller homes to choose from. This scenario no longer exists.

There are 3 key factors playing into this unique market.

1. We’ve seen the lack of inventory coming for over a year. This goes back to the traditional “buying” cycle being broken. If there are no homes to move up or down to, then where do you go next? The result is that people stay put or choose to renovate in order to make their home more livable.

2. Part of the reason appears to be the increase in foreign investment – although, this is speculative. Foreigners with a need to get their money out of their country, are investing in our real estate. They are paying grossly inflated prices for unseen properties. Unfortunately, this makes it much harder for Canadians to compete. To add insult to injury, many non-resident buyers never move into their properties; instead, they simply sit empty and appreciate in value.

3. Bidding wars are ending with prices that are unfathomable. It’s not unusual for buyers to bid 20% over list price, and there’s often one buyer whose offer dwarfs all the others. We’ve seen properties sell for 70% over asking! When bidding wars rage over pathetic junkers, you know we have crossed the border into crazy town. This is mostly due to our “closed-bidding” system. Some argue that moving to an auction system similar to Australia and New Zealand would help matters. By making every offer fully visible, buyers wouldn’t have to guess how high to bid, they would simply have to offer marginally more than the last one. Just this week, I represented buyers on three separate offers, and each one was highly competitive. Yet, the “winning” buyer was the one that jumped way over the second highest bid. Needless to say, it was a frustrating time for my buyers who came prepared to buy, but came up short.

This market is not making anyone happy except for the sellers who can’t believe their good fortune. What does it mean for the future of the GTA if the city is divided into land-rich homeowners and the frustrated wanna-be who can’t get a break? I wish I knew the answers. All I know is that if prices keep soaring for much longer, home ownership will be out of the question for many Torontonians. We can only hope our government can find a sensible way to intervene.

 

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