With 2022 now in the rear view mirror, many people are uttering good riddance and breathing a sigh of relief. While 2022 did deliver the soaring heights of Andor (in my opinion the best Star Wars series by far) and the Depp vs Heard trial, it also began with yet another lockdown and ended with $10 romaine lettuce, much to the chagrin of beleaguered caesar salad lovers everywhere.

The question that naturally (and inevitably) comes up then, is what to expect for 2023? Will we continue to see a litany of torment, or is there light at the end of the proverbial tunnel?

The good news, in my humble opinion, is that better days are ahead. But first I want to address the elephant in the room…

The December TREB stats aren’t pretty, and there’s no amount of secret sauce that can make that turd palatable. There were 3,117 sales reported, which is down 48% from the 6,013 sales reported in December of 2021. The average sale price came in at $1,051,000, which is a 9.2% drop from the December 2021 average sale price of $1,157,000.

On the surface these numbers seem cataclysmic, so what to make of them?

The first thing I want to point out is that December 2021 was an outlier. It was the start of the crazy run up on pricing that peaked in April of 2022, until the interest rate hikes started raining down and prices cooled. So we need context here. Looking at December in a vacuum would be like evaluating Eddie Murphy’s entire career if you only watched The Adventures Of Pluto Nash. It’s simply unfair, and profoundly depressing.

The low number of sales also does not surprise me. On the heels of the unprecedented number of consecutive rate hikes, the prevailing feeling was one of uncertainty and unease among buyers. I believe that any seller who could (and can) wait until Spring will in fact wait, and there is little to no appetite to dump a listing in the dog days of December.

Furthermore, if we look back another year the numbers becomes very informative. Consider, the average sale price in December of 2020 was a “mere” $932,000. Fast forward to the December 2022 figure and that represents a 12% increase. Or looking at it another way, if you bought a house in December of 2020 it is theoretically “worth” $119,000 more in only 2 years. It reminds us that real estate has always been and always will be a long game.

With December out of the way, I feel optimistic about the year ahead. A few thoughts on why:

The Market Will See Modest Gains

Call me ever optimistic, but I think after December there is nowhere to go but up. I think we will see a relatively balanced and flat market, albeit on a slight upward trajectory. I’m predicting somewhere around a 3% gain this year, and there’s nothing wrong with that in light of the last 6 months.

Interest Rates Will Stabilize

The next rate announcement is on January 25th, and the prevailing wisdom is that there will be a micro 0.25% hike (if at all), and if inflation numbers fall in line I expect we will sit tight for at least 6 months. This flatline in rates will support the modest gains I expect to see from the point above.

Mortgage Default Talk Is Overblown

The media loves nothing more than a sensational headline, and that’s what sells. Fine. For the past few months, we have been inundated with doom and gloom articles about rampant mortgage defaults, the market crashing and houses selling for pennies on the dollar. People will be forced to live in a van, down by the river.

As much as the long suffering real estate bears would love to see this, it simply ain’t gonna happen. We will see more defaults than usual, for sure, but it’s still going to be relatively inconsequential.

Consider, Canada-wide mortgage delinquencies rates were only at 0.14% in Q3 of 2022. That’s not even a drop of a drop of another drop in the bucket. Responsible, rational homeowners will adjust (and have adjusted) and find a way to make things work. If it means postponing that European vacation and ordering in once a week instead of twice then so be it. The gravy train on biscuit wheels will have to be parked for the time being.

There Are Already Signs Of Life

One thing I can tell you is that when the market turns, it turns fast. During the darkest, early days of covid when people couldn’t even leave their houses it was widely expected the real estate market would experience a protracted downturn. 

Things sucked for the first month, sure, but after people adjusted to the new normal we saw the market catch fire and prices explode in a way not seen since the boom of early 2017. Just last week, a house on Roseheath Ave attracted 15 offers and sold for 122% of the listed price. And just last night, a non descript house in Richmond Hill received 36 offers! I don’t believe these to be outliers, and it could signal the snowball starting to roll down the hill.

Immigration Will Fuel Demand

The ace in the hole of the GTA real estate market is pretty simple – lots of people want to live here, and lot’s of people are always moving here. According to CREA stats, in Q3 of 2022 Ontario’s population experienced a net increase of 142,490 people, which was up 72% from Q3 of 2021.

All of these people need somewhere to live, and there are only so many vans down by the river. With new home development so bureaucratic and bogged down at the provincial and federal level, supply will never meet demand and this ensures prices will always push up. If you build it they will come, and if you can’t build it they will pay through the nose for what little there is.

That’s all for today, have a great week everybody and go Bills!