What They Aren't Telling You About The Toronto Housing Market


What They Aren't Telling You About The Toronto Housing Market

Tags: Toronto housing market

The big question right now when it comes to real estate is: What am I supposed to do in this market? With the constant doom and gloom from the media, people have been left uneasy and afraid to make any real moves. So how can you sift through the headlines and get to the bottom of what's really going on? In this blog post, we are going to unpack that for you, so that you can answer the big burning question for yourself: What are you supposed to do in this market? 

To find out what you can do in this market we need to first understand the market. So what is really going on? 

First, it's important to understand that the headlines are there to create emotions and stir things up but they do not give you the full picture. 
Are interest rates up? Yup! But does it mean the market will crash because of it? No... Why? 
Because real estate is about economic fundamentals. The GDP growth or decline, unemployment (which is at low), and population growth (which is projected to keep growing). You see it's not just about interest rates it's also about fundamentals and what they influence. For instance, COVID, did it not affect us? Absolutely. It created a decline in GDP, then created growth in GDP. It helped a lot of people put away some money, created certain wealth, and it created challenges. We had very low-interest rates to stimulate the economy during COVID, which caused the real estate market to jump up and boom. But now we have higher interest rates and inflation, so we need to ask how do these factors influence us? Because here's the thing. When they influence, they do two things.
1. They create a challenge
2. They create an opportunity

Our job is to understand how to deal with the challenge 'cause there's always a solution, and how to take advantage of the opportunities. 

Let's break down those challenges and opportunities: 

If You Are A Buyer: 
If you're a buyer and reacting to the increase in interest rates, I want you to take note of one thing that the banks and the newspaper never reported. While the Bank of Canada increased the overnight trade, what was interesting was in July, all major banks actually lowered their five-year lending rate compared to the June rate. So in fact, the affordability actually went up, but nobody ever heard about it. But let's assume that the interest rate actually went up by 1%. What does that truly mean to you, a buyer? Well, first of all, we have to remember that in Canada, in order to get a mortgage, our banks will only give us a mortgage between 39 to 44% of our debt to our income ratio. So in other words, if we take all your total debt, we are still left with 56% of our income for disposable decisions. So technically speaking, if your operating cost goes up by $500 on a $750,000 mortgage, that means you make over $100,000 a year. Will $500 stop you from, reaching your dream of owning a home? No! Maybe you'll go to a restaurant a little bit less, or not take a big vacation, but you can still buy the home. Maybe the home is slightly cheaper, maybe a little bit smaller, but we can still make it a reality. So there is no need to panic. 

There are many different solutions for buying a home. Many ways to think outside of the box. One way to do that is thinking about homes from people who have been over-leveraged, that are now affected by the rates, who pre-bought pre-construction or something and are stuck. That now creates opportunities in the market because they need to sell quickly. 

 If You Are An Investor: 
If you're an investor and the interest rate went up, yes, your carrying costs go up. But here's the thing. Look around you. Have the rents not gone up? Isn't there a shortage of supply? We hear it every day. I just listed three of our properties that I manage that just became vacant. And not only did we increase the rates from before, but what was interesting is this. We actually re-raised them by an extra $250 above and beyond what we actually expected. And we rented it within a week to great people. So does that not make it much more affordable? We buy investments for cash flow, not just interest rates. We should not be panicking, it's time to look for fundamentals. Investing in real estate is still the safest vehicle to get you to where you want to go, providing you understand the rules, and make a sound decision based on economic fundamentals. You do the research, you know the rules of the game, you make the right decisions, you make the right investment, you will limit your losses, and you'll always increase your returns. 

If You Are A Seller:
Should you sell now? The decision to sell or buy should not be driven by the interest rate. It should be driven by your lifestyle and your needs. My team and I told everybody for months that in January, February, and even March, there was going to be a unique opportunity to sell. With the low inventory, we were able to not just sell above the asking price, but we were able to get offers where it was 150 over the market. Anybody can sell over asking. But we were selling over the market by $100,000, $200,000, why? Because there were people panicking and we knew how to leverage that. Does that mean that the market price actually went up for every other neighbor on the street? No, it just meant for that seller, we took advantage of the right opportunity while there was no inventory. The next day, the next house went back to market price and the process started again. So the prices didn't drop by 20%. They got adjusted.  When we hear the news that oh, a lot of the sellers are taking properties off the market, well, it's not because the prices dropped and they can't sell it. Some of them are taking it off the market because the agents still haven't adjusted to the new trends and they're still trying to do multiple offers. They're setting up these overpriced, by two, three, four, five, $600,000, expecting that they're going get multiple offers. They haven't educated the seller about the real price and what to expect. They might be saying "Oh, my neighbor sold for 1.5 million. My house is worth that much." Well, guess what? The guy that bought your neighbor's house overpaid by about 250,000, 'cause there was absolutely nothing to choose from and they were in a panic, the true value of the home is 1.25. So if you listed at 1.5, you would be sitting and nothing would be happening. If your agent has done the proper job of educating, then technically, there's no reason to come off. Now, if the home is properly priced, it may sell in 10 days or 5 days. But normally, if you're back to the regular market, that should be in about a 45-day period. So it's about understanding the true value of your home and asking yourself if it is the right time to sell.

Make sure to consider this- Just because the price has come down and the market is cooling doesn't mean we should worry or not sell. Here's the good news. When you sell, you have to go somewhere else. And the problem in January, February, and March when we got those high crazy prices for our clients, they had to go somewhere. So we usually told them either to rent because we expected the prices to drop or to adjust and have more inventory in May or June, which is exactly what has happened. Or they were forced to buy at a higher price. So was there much savings? Right now, yes, you're selling for less, but now you're also gonna be buying for less, and you have more to choose from so you can find the right property. So do not disparage. The interest rates actually created more opportunities for you.

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