It feels like it has been months now that I have been writing about signs of a softening real estate market.
Coming off of February’s highs, it seemed hard to imagine that the run wouldn’t simply just continue. After all, it’s been two COOVID years of highs that only get higher.
But then, of course, there were signs. Offer dates yielding fewer offers. Perfectly lovely underlisted homes failing to hit their price on offer night only to be relisted higher the next day. It seemed that buyers were suddenly exhibiting some reluctance and certainly some discernment — they weren’t willing to buy just anything.
The first real sign of trouble I noticed was at the beginning of March when my colleague had a hot listing in a hot neighborhood and, after a week of non-stop showings, she got but two offers. Her seller of her still hit their price but the whole thing was a little baffling.
I then had a beauty of listing the following week that was nice and busy but only yielded three offers. Again, we had a great result but the clear signs of waning interest left me feeling like choppy waters lay ahead. At that point interest rates were creeping up but the real smackdown from the Bank of Canada was still just conjecture. It seemed to me that people were bracing themselves.
And now here we are. On the other side of that smackdown with borrowing costs trending upwards and prices trending down. Exactly where we all should have expected we would one day find ourselves since rates can’t stay low forever.
For all the talk of supply, supply, supply, and the rampant speculation fanning the flames of our FOMO-driven market, the flow of nearly-free money was the gasoline that kept the flames burning. And as rates tick sharply upwards, some of the lunacy we have witnessed over the past few years has evidently started to moderate.
One need only look to TRREB’s April market stats to see how that moderation is revealing itself.
Toronto home prices dropped 6.4% from the month prior, the biggest monthly drop since April 2020 when the world came to standstill with the pandemic’s arrival. With a 26% month-over-month drop in houses sold, even the bulls among us who fervently believe in the strength of this real estate market must surely be starting to wonder.
Colleagues who insisted that all was well and my observations were nothing to worry about are now starting to change their tune. Everyone agrees to shift is underway — the question is what the next six to 12 months and beyond will look like.
Will this be like so many of the previous downturns that turned out to be relatively short-lived reactions to new policies and government interventions or should we be looking to the market crash of the early 90s for signs of what’s to come?
Will it take consumers some time to wrap their heads around borrowing costs returning to moderate levels before joining back in again? Or will our broader economic precariousness fail to provide sufficient stability to carry us through unscathed.
Even the economists can’t find consensus. Some reports are saying we should expect a 24% drop in home prices while others suggest we will land somewhere in the arena of 5-7%, still a ways off from where we were pre-pandemic.
Which makes this a particularly challenging time for realtors being asked to give counsel to their clients. The last thing you want to do is fear monger since none of know with any kind of certainty what’s to come — there are people still sitting on the sidelines who cashed out to wait for prices to fall only to now find themselves long-since priced out.
At the same time, I find myself scratching my head at the “real-estate-only-goes-up” type of agents still declaring now a great time to buy. I sincerely wonder if they pay any attention to their markets and consume any media beyond TikTok.
Broadly speaking, right now is not a great time to buy unless, of course, you actually need to, have the income to comfortably support these carrying costs, and are prepared to be in it for the long haul.
For the people who need more space, a change of location, or have planned on retirement in the short to mid-term on the equity tied up in their house, putting your life on pause in anticipation of an uncertain future is a mistake. Get yourself a seasoned agent who can battle it out for you and get out there. If you can land a comparable property for 10% below February then you are mitigating a substantial portion of the risk, in my humble opinion.
Selling in the same market conditions in which you need to buy, generally speaking means even impacts.
All that being said, for the people who still wonder if they should max out their line of credit to purchase an investment property, banking on guaranteed appreciation, I find it very hard to believe that that kind of risk is worth it.
Is it blue skies ahead? No, not really. Are we headed into a world of hurt? For some, yes, absolutely. For the rest of us, maybe, maybe not.
Don’t like that take? I apologize. I’m just trying to be honest.