Toronto’s Real Estate “Correction”: In Danger Of Becoming a Self-Fulfilling Prophecy?

Posted by: Elise Stern, Created date: March 27, 2013

For years, Toronto’s real estate market has awaited “the correction,” an event that looms large in the public consciousness – due, in part, to the efforts of the media to hype it. The correction operates on a simple premise: Toronto’s homes are overpriced, and eventually they will fall to more appropriate heights. Moody’s says home prices could fall 44%. But TD says they’ll be relative flat over the next 10 years, rising 2% per year (and doing better than any investment other than stocks). And BMO says fears of a “housing bubble” are unfounded.


Faced with claims like that, it’s no wonder that consumers and new entrants to Toronto’s real estate market are confused, and loath to make a decision. It can seem safer to just stay in one place and not make a change. Inertia is a powerful force, and nothing keeps prospective home buyers out of the market more effectively than the idea that if they can just wait a little longer, home prices will become more manageable. Combined with Canada’s new mortgage rules, there are a lot of reasons for new entrants to stay out, or for potential home buyers to cool their jets and pursue leasing or rental agreements in between home sale and home purchase.


What consumers may not understand is that despite not entering the market, they’re still influencing it. The refusal to shop for or buy a home has an impact on the market, and this impact is helping to drive sales down. According to the Toronto Real Estate Board, sales for the first two weeks of March are down 11.5% compared to last year. TREB predicts that prices will rise 3.5% per year over the next ten years, just a step above TD’s prediction of slow growth. By holding out, prospective Toronto home buyers are creating a chilling effect on the market.


But this is not a bad thing, necessarily. For instance, lowering the price of a well-appointed home is a good way to start a bidding war, which can quickly turn profitable. The tactics learned in such a tough market can be applied in almost any other — as the old song goes, if you can make it there, you’ll make it anywhere. Moreover, the people who do decide to enter this market are almost certain to be completely committed, and ready to deal. They are less likely to dabble or get cold feet or shirk the responsibilities of staging and paperwork, because they have a deep desire or need for a home.


One element to the correction that is rarely brought up in pieces about its imminent arrival is Toronto’s “micromarkets.” Toronto is a city made up of neighbourhoods, and each of these neighbourhoods has distinctive features that differentiate them from each other. The city is also made up of different price points that are attractive to different subsets, and different numbers, of buyers. It’s entirely possible that these markets – or some, but not all, of these markets – will see individual corrections on a staggered timeline, which translates to lower prices overall but only over a prolonged period.


This is why it’s important for realtors to focus on the markets they know, and pay attention to weak signals within those markets that things may be changing – and for potential buyers or sellers to keep an ear to the ground and stay in close contact with their realtor. Take a look around. Get to know the local businesses. Go for a walk. Try to see what buyers might see. These little details are what can help people find their homes faster, and all the information you learn will be doubly relevant if and when a correction comes and the market floods with buyers.

provided by Harvey Kalles Real Estate Ltd.

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