January 2023 Market Report


January 2023 Market Report

Tags: Toronto Market Report


Welcome into 2023, 2022 is in the books, the kids are back to school and we are back to business. It's time to talk about our favorite topic, and that is real estate! So what does 2023 really have in store for us as the buyers or the sellers? 2023 is a year that's gonna be a year of possibilities, and the reason I say it's possibilities is that although 2023 is bringing specific challenges due to the high-interest rates, due to the concerns about inflation and the upcoming responsible recession, as well as the effect it has on local businesses and people's affordability. What I have to say is this with every challenge there's always a new possibility and opportunity being created. So how do we make decisions on the market? 

First, let's take a look at where the market is: 
When we look at the headlines, we see something like the headline that's from Bloomberg: 

Now if you look at another headline you see for financial posts is kind of the same:

But then we look at the Toronto Real Estate Board and although they outlined different stats, one of the stats they outlined is this year-to-year average price from 2021 to 2022, the price for 2022 is up by 8.6%. So let me ask you, are the benchmark prices down by 8.9% or is the average price up by 8.9%? Who do we believe? I think my point would be very simple. Instead of buying into headlines and statistics, let's buy into economic conditions and solid business sense. Another headline that just came out tells us that tens of thousands of Canadians could default on mortgages due to rising interest rates.

 I think when you read something like that it can make you feel worried as a seller and as a buyer. Now, let's look at the actual economic conditions the GDP growth is actually down to 2.9%. So should we be worried? I think this is actually good news and I'll explain why.

Although the GDP is down which means there's been less spending. The question then is if that's the case does that not take the pressure off the inflation and at the same time isn't it still a positive growth? That means we are not heading into a recession 'cause a recession happens when there is continuous negative growth.

Unemployment rates are up to actually 6.3%. What I want to bring to your attention is this, both rates from the last report and this report are actually still historically low. At this rate, employers are still challenged to hire people and maintain their unemployment levels, and have their businesses staffed properly. So an increase in unemployment may be a good thing!! It will give employers a bit more people to choose from and may keep the competition on wage hikes down which may cause the inflation rates to come down.

Now let's look at the inflation rates, the inflation rate is at 6.8%, which is a downslope. That's what we wanted to see 'cause it was the upslope that caused the Bank of Canada overnight rate to go up. The Bank of Canada overnight rate is at 4.3% which is the highest it's ever been. On January 25th we're expecting another announcement. Given all the conditions, the declining GDP, the rising unemployment rate, and the declining inflation, there is a chance that the next increase is going to be only 0.25% instead of a 0.5 or 0.75. And if it's a lower amount what message does it send to the consumer? Or maybe what if it's a freeze would it not bolster consumer confidence? And in fact, if you look at the Bloomberg report you'll actually see that consumer confidence since September has been on the rise when it comes to the real estate market.

One of the reports that we're seeing says that if the rates actually start coming down we should be expecting more REITs coming in and investing back into Canada.

A REIT is a real estate investment trust created for investments in Canadian real estate. If you're just buying into the headlines that the market is down the sales are down, and the prices are plummeting, your reaction is going to be to stop buying. And if that's what you do, might you be missing the opportunities? Let's not buy into the headlines but let's look at the economic conditions. From what we can see the economic conditions are actually giving us positive messages. Now I don't have a crystal ball, and there is a possibility of the recession coming in. Yes, the rates may still increase and yes the rates do create a challenge for both businesses and you as a consumer or a buyer or a seller because of carry costs on your mortgage.

But here are the opportunities that the market creates. So then let's talk about the opportunities this market creates for you as a buyer. First of all, because of all the news in the headlines, the sellers are worried, and maybe if they've been on the market for a period of time they will be more negotiable with pricing. So it's not about expecting price drops or the values of homes to drop it's about finding the right opportunities where there are people that are going to be more willing to negotiate and drop their prices which creates the perfect opportunities for the buyer right now.

Let's look at inventory levels.  

The inventory level in January 2022 was 6,200 units. In January we had 6,150 units, in February 69, and the only time the market inventory went up to a reasonable number was in June when it was 16,000 units. But then it started dropping again in July. As a result of that, we actually saw a price increase in September all over again. So where am I leading? This current inventory level of 7,300 units or 7,396 units, looks very similar to what happened last January in 2022. So if you're gonna get consumer confidence back up with a rate freeze, inventory is low, and economics kick in high demand, will people be more negotiable or less negotiable?

Another opportunity is the pre-construction market. There are people out there that bought two or three years ago that are coming up foreclosing due to the interest rates. That gives you the perfect opportunity to buy properties below current market values.

If you are a seller:  what's in store for you? You may be challenged by the new interest rates. If depending on when you bought you might have accumulated a lot of equity.  There are solutions that we have available to help you with the carry cost to get you past the interest rate increases. So the question to buy or sell is gonna be really driven based on your lifestyle, your family needs, and opportunities you're looking to gain. Give us a call and we can show you very specific opportunities that are created by today's market. Whether it's upsizing or downsizing or how we can keep you in your home outside of the pressure of the current mortgage conditions.

There is no doubt that 2023 brings us challenges. But with those challenges come amazing opportunities. And 2023 is gonna be a year of opportunity.