The GTA real estate market, or any real estate market isn’t that complicated to figure out.
Factors creating a market are easily to distinguish and monitor. We either have a sellers market (more buyers than sellers = price increases) A buyers market (fewer buyers than sellers = stable or declining prices) or a balanced market. For many years we have had a sellers market in choice locations, but not all locations.
Mortgage rates impact our market. Money supply has been plentiful and competitive. Rates are attractively low. When the money supply tightens up and rates increase dramatically the real estate market will slow down and adjust (Bobble.) Right now, buyers are confident with rates and the competitive supply of financing available. A drastic or prolonged spike in mortgage interest rates would Bobble the real estate market. Fewer buyers would venture out and shift the marketplace. Prices would either become more stable or decrease depending on the urgency of the seller. I don’t see any drastic or prolonged spikes with mortgage rates to cause a major impact in our market.
Other benchmarks for the real estate industry include theeconomy and immigration. If a buyer has a job, and is secure in thinking his or her job is relatively stable they would purchase with confidence, if they have the need. Take away confidence in the economy and fewer buyers venture forward. Other than having some out of our borders event change things, I see nothing to upset the real estate market from the economy window other than the occasional Bobble here and there.
Not even the upcoming Federal election.
Many don’t realize the important role immigration playsin our economy and real estate market. Roughly 100,000 new immigrants call Toronto their home each and every year. On average, an immigrate ends up buying their first home within 5 -7 years. Immigration is incredibly important for growth and our market. The more skilled immigrants equates to more consumers. Our country and city will continue to attract new immigrants
So is this a Bubble market as some will say?
Is it all about to burst right before our eyes?
To answer these questions we first have to study our past. Let’s look at what our friends to the south went through beginning in 2008.
The real estate market in the States was humming along nicely prior to that date. A balanced market by and large. What happened to cause it to collapse?
Mortgage rates were cheap and very competitive. Mortgage suppliers and the “rules” surrounding the mortgage industry were lax. But the mortgage game although a key factor wasn’t the overriding factor, which lead to the bubble bursting.
The economy in the States was reasonably strong, inflation was under control and most people could find relative work according to their skill level. Check off the economy as not being the key factor in the collapse.
Housing stock was strong, most markets had properties for sale just waiting on buyers. balanced market.
Immigration, legal and illegal added a vibrant element to the real estate market.
So what happened?
Let me introduce you to Mr. Speculator and Mrs. Property Flipper. Or Mr. S and Mrs. P.
Flippers or Speculators play the real estate game like the stock market. They get in, take a profit and get out. Their commitment is short term. They might add a coat of paint, cut the grass or do some other low cost improvements but they generally do as little as possible, sometimes they don’t even close on the deal but sell the paper.
At the peak, 37% of all property purchases in the states involved speculators. All you had to do was grab a cab in any major US city at that time and your driver would inevitably tell you about all of the properties he had invested in and flipped. This number created an artificial market, which certainly would collapse, and it did. Once Mr. S and Mrs. P couldn’t play the market for a profit, they got out. Close to half of the market disappeared once they made their exit. Mr. S and Mrs. P took advantage of the mortgage rules and ran the tables.
We have our own history with flippers impacting our market here locally. During the Boom market of the early 80’s, I recall one home selling to Mr. S and Mrs. P with a set closing of months ahead. Before the closing date, the agreement had been sold and resold 6 times. People were selling paper. Each time for a profit and each time increasing the end price. No wonder the market collapsed. It was an artificial market fuelled by speculators.
I like to think lessons have been learned from the 80’s and from our friends in the states. Today speculators play a very small role in our marketplace, roughly accounting for less than 10% of sales.
We do have some condo’s selling before being registered, but not over and over again.
Generally our market is made up of long-term owners or investors. People who are in the market and contribute to it. Anything else is artificial and doomed to a collapse. Once Mr. S and Mrs. P play a major role in our local market, it will burst.
Our market now is more prone to Bobble along. It may stall, decrease a bit in certain markets, and increase again. But Bobble along it will
Should you be buying a house or condo now? To answer that question I will ask you to look 20 years ahead into the future of the GTA. What do you see? Will house prices be the same, lower or higher? Will our community continue to grow overall? Will Canada and Toronto continue to be a choice world destination for new immigrants.
As long as you are in the real estate market for the long term, it is a fantastic market to be in. I would caution you not to speculate on this market or any other real estate market – short cycles inevitably cause problems. Any Bobble could put you under.
Invest with long-term confidence in our real estate market and enjoy the Bobble.