Over the past couple of weeks, we have all read headlines such as “Canadian Real Estate Braces for Reckoning” or “Home Sales in Toronto are Falling off a Cliff this Month”.
It is understandable that one would interpret these articles differently depending on what side “of the market” you are sitting on.
Are you a seller or are you a buyer?
A seller’s immediate reaction would be “should I have sold sooner!?”; whereas a buyer may think “should I wait a bit longer before I jump into the market?”
We can however all agree, regardless of our immediate and personal interests, that the underlying message of some of the articles implies a downward pressure on real estate prices if not a downright bargain hunt scenario.
Not so quick…
Toronto has become a micro-market with its own underlying fundamentals, social characteristics and economic pillars. Meaning, our real estate recovery may not be aligned with the real estate recovery in the rest of Canada, nor even the rest of Ontario for that matter.
We may get out of the gates first and end up at the finish line fastest. (This thought warrants a separate article which we will focus on in our newsletter next month).
The GTA and Toronto were on track for another strong and sustainable upward trajectory in both sales volume and price gains in the real estate market in 2020. It started with a strong rebound in the second half of 2019, which persisted at the beginning of 2020, and ended up with a very strong first half of March, until….
In a matter of a couple of weeks we were all confronted with new realities called “physical distancing” and “self isolation”; two practices that are not conducive to buying or selling real estate.
The question remains; will a drop of sales volume trigger buying opportunities?
- The steep drop in sales volume:
Yes, sales volume for the month of April will be way down (69% in fact as reported by TRREB). The month of May might not look any better… sales in the month of April may not even reach 25% of the sales that have occurred last month.
We can directly link the drop in sales volume to a few very basic but fundamental logistical steps required in order to trade in real estate, either as a consumer or as a Realtor*.
– most condo buildings are closed for business, showings are simply not allowed to occur.
– Sellers are wary about having “strangers” entering their home and buyers are cautious of entering the unknown.
– Foreign buyers are not in a position to assess their future investment. They can’t even book a commercial flight.
– Realtors do not want to expose their clients to unnecessary risk.
The main and most important driver of any real estate transaction is “the showing”.
Realtors are working very hard to mitigate the impact of the lack of showings by introducing new technologies to introduce listings to the market such as 3D videography, virtual open houses, etc. as our team has already employed.
While all of this is necessary for the time being, even the most advanced technology will not replace the emotional connection a buyer develops with a space during a showing.
2) The buying opportunity:
Thus far, the sharp drop in sales has gone hand in hand with a sharp drop of inventory levels (new listings in April have fallen 64% according to TRREB).
Inventory levels did not keep up with demand when the economy was operating at full throttle and when price records were broken with nearly every sale. Sellers did not “cash out” then; why would they sell now?
Some people will have to or will want to sell for all sorts of personal reasons, but we are not anticipating “for sale” signs going up en masse.
In Toronto, most recent homeowners were faced with larger down-payments and more stringent mortgage qualification rules. 27% of new homeowners have no mortgage at all. And for most of our seasoned homeowners, their home equity far exceeds their debt. Most homeowners have staying power and can weather this crisis.
We may however temporarily enter a very healthy period in our real estate market known as a balanced market.
A buyer can negotiate one-on-one with a seller without having to fight off a dozen competing bids; only to face the remaining 11 buyers at the next bidding table.
This alone is a reason to enter the market as many of us have been faced with an imbalanced market for a long time. Furthermore, historically low interest rates are too good to turn down.
Take advantage, this window of opportunity may close faster than we think. If you recall back to 2008, there was a short six month window of opportunity for buyers.