Opportunity Knocks?

In life we spend so much time, effort and mental real estate chasing elusive “opportunities”.

Some opportunities are relatively easy to identify and define – think of a career advancement or promotion, or an athlete getting called up to the big team.

Other opportunities are much more elusive, or “unicorn like”. Think of hitting on the next big crypto project, or the Chess Club Captain scoring with the Prom Queen in high school.

Without a doubt, however, the biggest “unicorn” opportunity has been the Toronto real estate buyer finding a deal during the pandemic run up on pricing.

As we rolled into 2022 it was definitely “more of the same” when it came to Toronto pricing, as the heat of 2021 carried right over. January is typically the lowest price month of the year, and even in the insanity of 2021 that was the case.

But 2022 had other ideas, and the average price in January had jaws dropping when it came in at $1,242,000! In case you are keeping track at home, that’s a new all time record price in the historically worst month of the year. Seeing that kind of number in January was akin to a Kardashian refusing to have their picture taken.

The heat kept up in February, and the average price clocked in at $1,334,000. No big deal here, only an almost $100k increase month over month. Only another record month by a country mile, and once again occurring in a typically down month.

At this point even the most optimistic of prospective buyers started trading in their meditation apps for sixty pounders of Vodka. Like the Allies being driven back to the beaches of Dunkirk in 1940, all hope seemed lost.

But then, against all odds (one of the great movie songs of all time by the way) the tide started to turn. At first it was subtle, but it quickly became undeniable. So what the heck happened? A fine question indeed, and there are a few key reasons why.

First and foremost, the government realized that they finally had to try to do something, or at least give the impression that they want to do something to make housing more affordable (and I don’t believe for a second they actually want that).

We all waited for some progressive and creative ideas, like Einstein burning the midnight oil to crack the theory of relativity. We waited, and waited. What we finally got was another trip to that most tired of wells, with renewed attacks on the Big Bad Foreign Buyer. The foreign buyer tax was increased to 20% (from 15%), and a 2 year ban imposed on foreign buyers outright. 

This sounds great, you might say. Until I tell you foreign purchases make up less than 5% of the total market. So in actual practice this measure will achive next to nothing.

Next up they took aim at another long standing villain, and announced a ban on the blind bidding process. Now, in spite of the many logistical challenges behind an open auction system I do wholeheartedly support this idea, and I strongly believe that increased transparency in the industry is a positive thing.

It seemed there was finally a good idea, until it was completely neutered when the government announced that the ban isn’t mandatory, but rather the seller could “opt in” to an open bidding system. Call me cynical here, but I find it very hard to believe that any seller is going to “opt in” to an unproven system that will likely lead to less money in their pocket. I would love to “opt in” to having Auston Matthews as my linemate on my beer league team, but we all know it ain’t gonna happen.

So we have 2 measures that will have very little practical impact on slowing prices, but as we saw in 2017 the perception that the market needs to be fixed can still have an effect on consumer confidence. And that started happening again.

There was now a bit of blood in the water, and then interest rates started rising, with some experts predicting a further hike of a full basis point before year’s end. Unlike boogeyman foreign buyers or a sham ban on blind bidding, the rate hikes do have a real impact, particularly to the sub one million segment of the market.

Throw into the mix rapidly escalating inflation and exorbitant prices on things like gas, lumber and food, and people simply weren’t as house horny as they were in January or February.

The proof was in the pudding. We started to see houses not selling on offer night, and days on market became bloated. Showings were down across the board, people who bought in the height of February and needed to sell in cooler April became panicked, and areas of the 905 became an ice bath.

A look at the numbers was deeply telling, comparing February GTA prices with sales data from the month of April up until the 19th for each segment.

Detached went from $1.65 down to $1.45, for a drop of 12.1%.

Semi-detached went from $1.33 to $1.15, for a drop of 13.5%.

Freehold townhouses went from $1.24 to $960k, for a huge drop of 22.6%.

Condos went from $740k to $690k, for a drop of 6.8%.

Not since the brown acid hit Woodstock have we seen so many drops.

It’s now time to look at real world examples, and real sales. Earlier in the year I wrote a blog about the price explosion in an Ajax townhouse complex where I represented the buyers. Here’s an excerpt:

“After hemming and hawing, my buyers stretched to $640,000 on a $569,000 list price and it got the job done. 

Fast forward to July of 2021, and the exact same model sold for $700,000. 

Fast forward to September of 2021, and the exact same model now sold for $790,000! 

The grand crescendo to this story occurred on February 4th, 2022, with a sale of $999,999!! “

Crazy stuff for sure, but what giveth taketh away, however, as we explore the other side of the coin.

Once again we find ourselves in Durham, this time in a townhouse complex in Pickering. I focus on townhouse complexes because of the relative similarity between the units, but also because I had the privilege of representing the buyers again. Here we go:

Townhouse 1 sold on November 26th, 2021. It went for $802,000 on a bully offer on a list price of $675,000.

Townhouse 2 sold on April 4th, 2022. It went for $951,000 on a list price of $750,000, smashing the record price of the complex.

Things looked grim when townhouse 3 hit the market on April 21st. Listed at $799,900 with an offer date, we didn’t even bother to see it and had effectively shifted our focus to Ajax. But for some reason I had a strange feeling on this one, so I flagged the listing and offer date. And lo and behold it didn’t sell, much less receive an offer.

By 9 am the next morning we saw the house, and by the end of the day we had secured it at the asking price PLUS we negotiated a 3 day conditional period with the exact closing we wanted. That’s a huge win in and of itself, but let’s just mention again we got it $150K less than the previous sale less than a month ago.

First hand, I noticed the deal of the year thus far. And it couldn’t have happened to a nicer couple.

T.S. Eliot once famously opined that April is the cruelest month, but for Toronto real estate buyers it might be when the wave finally broke and rolled back forever.

Published On: May 10, 2022Categories: Condos, Houses, My Two Cents

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