2017 Toronto Real Estate Market Predictions & Tips
Author: Tracy Ruddell
The New Year represents a time of new beginnings and, for some, it’s a year that will lead to purchasing a home for sale in Toronto. It may be a first home purchase, a move up, a move in location or even a down-size to better suit your lifestyle and financial plans.
While your home needs change throughout your life, one thing seems constant and that’s how much we GTA'ers love to talk about Real Estate! It continues to make headlines and fuel heated debate, from boom or bust and bubble predictions to bidding wars and first time buyer mortgage woes. The truth is, there is no crystal ball and so you have to take any market predictions with a grain of salt but we can put together reasonable short- and mid-term outlooks based on historic trends, current market conditions and the economic and political outlook for the coming year.
Here’s what we’re talking about around the office right now.
It’s Not Going to Get Any Cheaper to Buy a Home BUT Moderation is on the Horizon
No surprise, it’s not going to get any quicker or cheaper to buy a home in Toronto. It’s hard for us to understand why people still believe an imminent crash is in the cards; that if they just wait another year or two, the bubble will burst, prices will plummet and they can finally get on that first rung of the property ladder, make that next move up or get into that prime neighbourhood they’ve long coveted.
It’s not that we don’t think parts of the GTA are over-valued or that we won’t see some moderate price corrections over the next three to five years but this belief that the entire Toronto Real Estate market is significantly over-priced, i.e. in bubble territory, and that that bubble is going to burst suddenly due to some event, either orchestrated or natural, is a stretch.
We believe we’ll see a slowing in the rate of annual appreciation starting this year but that the average price appreciation by end of 2017 will still net out far above historic rates. We all know that we can’t see +30% and +40% annual gains like we’re seeing in some Toronto neighbourhoods and GTA cities continue indefinitely but a moderation in price growth to, say, +10-12% this coming year (which is what we’re likely to see on average) can hardly be called a cooling. In other words, you have to read the details below those “Market Cooling” headlines closely; sales in the freehold market are cooling, yes, because supply is dwindling to record-low levels but prices are skyrocketing.
The average, home sales price in the Toronto Real Estate Board's purview increased by 17.3% in 2016 over the previous year. That steep rate of annual price growth will likely drop but not plummet this year. Some of our fellow brokerages are calling for a drop by ten percentage points to around 7% or 8% average growth this year over last; we think it'll be closer to 10-12%. You can expect freehold prices to continue to rise in most Toronto neighbourhoods by at least 10% but of course, we'll continue still see hot pockets where a 20%, 30% or even 40% increase over same period last year shouldn't come as a shock. Toronto condos should continue to appreciate by 5-7% per annum on average and this could be the year that Toronto townhomes outpace detached homes in terms of year-over-year percentage growth.
Hot, up-and-coming areas like Oshawa will continue to show the greatest price growth as they have the most ground to make up for with urban sprawl pushing out against the boundaries of the GTA. Don't be surprised if the average annual price appreciation is around 30% in Oshawa this year and about 25% in neighbouring Whitby, with certain trendy neighbourhoods appreciating above this.
And that's the thing to remember - the GTA real estate market is still a neighbourhood proposition. As in any year, some areas will rise above the average price growth while others may actually see price decreases over 2016. That’s why it’s so important to work with a GTA REALTOR® who’s a neighbourhood expert in the area you’re looking to buy or sell in. Whether the overall market is hot, cool or somewhere in between, there will always be mini pockets (as well as individual properties) that buck the trends and this year will be no different. And this brings us to our second point.
But Sellers Can Still Lose, Even in a Hot Market
A hot Real Estate market doesn’t guarantee that you can bid an exorbitant amount to win a bidding war and still make a profit a few years down the road, come re-sale.
Sellers can get burned, even in a red hot seller’s market, and that’s almost always down to one of three things: a terrible agent giving you bad advice (oh, the stories we can tell), over-investing in renovations and material upgrades and/or over-paying at the original time of purchase which is typically due to an emotionally-fuelled, multiple bid situation.
Let’s talk about the last factor today as that’s something a lot of buyers are facing right now. You may see a listing go for 30% above last year’s market rates for that neighbourhood and think that’s acceptable because someone’s willing to pay it but that someone may be planning on staying in that home for 15 or 20 years or just have more money than sense.
You need to be open with your REALTOR® about how long you think you’ll live in the home and what your profit expectations are on the flip side. You need to work with a seasoned Toronto REALTOR® who will understand where paying 20% or 30% over last year’s prices is probably still a safe bet (such as in rapidly transitioning neighbourhoods) and where it’s a risky proposition, i.e. in hyped-up neighbourhoods that are likely over-valued and may see a correction when interest rates go back up.
This is particularly important for buyers purchasing a home on a high ratio mortgage. If you have as little as 5% down, it’s absolutely still possible to owe more than you own even though we don’t see any big bubble in our mid-term future. Even though the overall market is stable in our opinion, there are absolutely little bubbles within it and those are the ones you need to avoid.
We’ve seen houses go for Riverdale prices at Main & Danforth, for example, or homes in Little India selling for more than a comparable home in the heart of The Beach. Just because Real Estate is hot and a particular area is trendy doesn’t mean you can’t lose. And lose big.
Five to Sixth Month Closes Will Become the Norm in the Freehold Market
If you’re a buyer in today’s market, it’s probably going to take you a lot longer to purchase a home for sale in Toronto than in previous years, particularly if you’re looking for a family-sized, freehold home within a short commute to the core.
Because of the realities of the major listings shortage we’re under, it’s advisable for sellers to get as long a closing period as possible. If your home goes to multiple bids, you’ll be in a good position to dictate terms including closing period. We’ve already seen this happening more frequently in 2016 – the typical 90 or 120 closing periods have stretched to 150 or even 180 days on freehold homes. It’s easy to understand why.
One of the major issues contributing to our current listings shortage is that home owners in possession of freehold homes don’t want to list in fear of not finding a new home that fits their wish list and budget, in the time parameter needed to not leave them homeless between closing periods.
Going hand in hand with this, there’s a need for banks to lighten up on their bridge financing approval terms in order to stimulate more listings but it’s unlikely to happen given the public and political pressures on banks.
In previous years, it was easier for home owners with a lot of home equity and a great credit score to secure bridge financing in order to purchase a new home before selling their current home. Now, it’s highly unlikely that a buyer will be able secure a bridge loan before having their current home sold; lenders want to see the Agreement of Purchase and Sale for your current property before granting a bridge. Then, they may grant you a few weeks bridge (so as not to have to move out and move in all in one day) or even a few months (in order to do renovations before moving into your new home).
For those who want to buy before they list in order to alleviate the risks of a low-supply market, you’re probably out of luck unless you can secure a private loan. It’s unlikely that traditional lenders will make it easier for home owners to buy before they sell in the coming year, given pressures from the Federal Government to lower overall economic risks. So, we can expect to see long closing periods become the norm in 2017, particularly on detached Toronto homes, and buyers should be prepared for that.
The Federal Government Will Take Stronger Actions against Flippers & Investors Claiming the Primary Residence Exemption
Fall and winter 2016 saw a number of new mortgage restrictions that hit first time buyers the hardest. It’s been a tough pill for Torontonians to swallow, particularly when we’re not seeing any sizeable action to address the underlying market issue of supply of GTA homes for sale coupled with skyrocketing rents. I think we can expect to see the focus in 2017 shift to taxation.
It's been making headlines for a decade now but we haven't seen the Government crack down on flippers in a major way yet but the intent was evident in Budget 2016. This coming year, expect to see the gains of more flippers being taxed as business income and not just capital gains and those who have been avoiding taxes for years see their number called.
There is of course the possibility of a new foreign buyer's tax in Toronto as well, as implemented in Vancouver. We don’t think this is likely, however. The Feds rightly appear to be waiting for the results of their funded StatsCan research to get real data on foreign ownership in Toronto. We’ve always suspected foreign ownership to be somewhere in the 5-8% range in Toronto based on our experience as well as that of our colleagues over at Condos.ca and if that proves correct, it shouldn’t trigger a new tax as it will become clear that it isn’t at the heart of our skyrocketing housing costs in Toronto.
So, what does this mean for you if you're not an investor? Not a whole lot, I'm afraid. While taxation may bring some moderation in the market, cooling the jets of some investors, it’s unlikely to be significant enough as to result in lower prices for consumers looking to purchase a Primary Residence.
While we don't think tax dodging should be ignored, we’d like to see the Government (particularly at the Municipal and Provincial levels) focus instead on innovative solutions to deal with supply while still protecting our Green Belt such as better use of under-utilized pockets of urban land like laneways; Vancouver has seen a lot of success with laneway housing that make Toronto’s municipal build policies look positively archaic.
If we offer more builder incentives to better utilize land for residential both vertically (e.g. every commercial development should contain some residential above) and horizontally (such as in the example of laneways), we can start to make headway with increasing supply but we have to start now. Hopefully, 2017 will be the year that our Government at all three levels focuses not just on “quick fixes” such as tougher financial stress tests for mortgage applicants but also on long-term solutions that are sustainable and will ultimately offer a better quality of life for citizens, whether home owners or renters.
It’s More Important than Ever to Protect Yourself
It is the job of your REALTOR® and your lawyer to help protect you from Real Estate fraud and unethical practices but we all know that there are unethical REALTORs® out there. We talked a few weeks back about the dangers of double-ending which is becoming a much more common practice. Fraudulent behaviours such as phantom bids are also a very real threat to consumers. So, how do you know who to trust?
We’d like to see RECO do more this year to identify and punish unethical REALTORs® (a few thousand dollar fine is not a major deterrent). Until that time, first and foremost, you need to protect yourself by educating yourself on the basics of Real Estate and by staying informed about the market. If you’re informed, you’re much more likely to be able to spot the difference between an educated, experienced and honest Realtor® and a dodgy salesperson who sells sizzle with no substance.
The good news is that 2017 should bring a lot more transparency to the Real Estate profession and that means more information in the hands of consumers, where it belongs.
We’ve always felt that Real Estate sales data should be made public although that's not without controversy. And not just among REALTORs®. Many home sellers don't want their sold price to be made public but the reality is, anyone can find it out now by asking a REALTOR® or, if they really want to avoid that, they can go straight to public records at City Hall. Regardless of how individuals may feel, the market has changed with technology and, with the outcome of the recent competition tribunal against the Toronto Real Estate Board's MLS data restrictions, 2017 should see more information brought to consumer's fingertips.
We started this company with that mission in mind, to arm consumers with as much market information as we are legally able to provide, in a way that’s accessible and easily applied to aid your decision-making when buying or selling a home. It's not just about publishing sales prices after all; it's about presenting data in a meaningful way that helps consumers make smarter moves.
In line with this, our founder Carl Langschmidt did just that for the condo market with his partners Andrew Harrild and Ahren Langschmidt at our sister-company Condos.ca. It's the only website to provide accurate cost per square foot data for almost every condo building in Toronto and surrounding areas. Without accurate square footage plans and prices, you can never compare apples to apples. And this information isn't just critical for consumers - hundreds of REALTORs® from other brokerages use the Condos.ca site as well as that information just doesn't exist elsewhere.
We’re in the process of building out similar tools for the freehold market on Property.ca that are not offered on any other Real Estate team’s website in Canada. Without this type of information, buyers have no way of knowing without consulting a REALTOR® if a listing price is fair market value (under-listing still being the norm) and sellers don't have the tools available to them to be able to judge if the valuation they’re receiving from an agent is fair - that is, not any accurate, free tools that they can access directly without having to go through a REALTOR® or pay an Appraiser for, outside of what Condos.ca has already done for local condo buyers and sellers.
There are some agents (not the majority by any stretch) who will encourage uneducated sellers to list for less than they could get in order to secure a quick and easy sale. 2.5% of $480,000 versus $500,000 makes little difference to the REALTOR® but makes a lot of difference to the seller. That's why it's so important to not only hire a great agent but to educate yourself as well so that you're in charge of your own Real Estate success. And there's a heck of a lot of gains to be made in Real Estate both financially and from a self-fulfillment / lifestyle standpoint if you make the right moves.
We encourage you to read our blog and like us on Facebook to keep up-to-date as we launch new, interactive tools and data on our website. And have a read of our tips on how to hire a REALTOR®. Whether it’s with us or another Realty team, we want you to work with someone who really understands the neighbourhood and property type you’re buying or selling and has your back, every step of the way.
And may all your 2017 Real Estate dreams come true.
Lead image: © Ahmetfurkan COBAN from Shutterstock.