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Q: Amir and Aleks, I’m a Buyer, looking to purchase in the Toronto Market, and with all the recent news (i.e. interest hikes, bank rules, foreign taxes etc.) I’m not sure what to do! Should I buy or wait?
A: Hey there! Great question and don’t worry, you’re not alone, as these days, that seems to be one of the most commonly asked questions – namely: Buy now? Buy later? Or, perhaps, don’t Buy at all?
Before you start, you should define your “Buyer Profile” – are you a First-Time-Buyer? Looking to upsize/downsize? Looking for a condo or a home? Are you an Investor? Defining your needs/wants & profile is critical prior to your search – whether now or whenever.
To understand what to do, let’s look at 2017, here’s a quick breakdown:
- Jan-Mar was insane (30-50% yr/yr growth in certain areas)
- That growth was obviously not sustainable
- Gov’t intervened in April (16-point plan)
- Market reacted (both leading up to and after the announcements)
- Buyers became weary / more timid
- Sellers slowly realized that the Jan-Mar prices were done with
- Leading into the tail end of the Spring market, prices cooled
- Relative to early 2017 prices – but still up vs. 2016/15 and so on
- Condos were less affected vs. homes
- Detached properties saw the biggest hit
- Into the summer, prices still cooled & Sellers became more compromising
- We saw far more inventory hit, but fewer sales, as Buyers started to play the wait-and-see game
- The latter put further downward pressure on the market – and even more importantly, on peoples perceptions
- Perception drives attitude, attitude drives decision making (or lack thereof)
- Into August, historically a slow month, we saw, as expected, a slowdown
- Forward to September, a flood of inventory in all areas, and more trading
Q: Ok, cool breakdown, but what does this translate to? How does this help me?
A: Here’s how – first, when we discuss price drop, always ask what the drop is being measured against. So if you’re talking about a property that would have sold for 1M in Jan-Mar 2016, but sold for 1.3M in Jan-Mar 2017, and is now “worth” 1.2M – that’s a 33% drop, right? Gained 300K, dropped 100K. So, 33% drop in 2017, but 20% up vs. 2016. This matters, because the way the media paints the picture, and the way most people understand it, is that the prices have fallen drastically … and this evokes fear (that they’ll drop even more) … but that is not the case. The truer statement is that prices went up too quickly in 2017 and fell to what they could/should have increased to at the onset.
Q: Ok – I get it, but 1.2M vs. 1M is still 20% gain, don’t you think it’ll keep dropping?
A: Renovated semis in Leslieville, Riverdale, Bloor-West, High-Park, Dovercourt/Brockton Village, Annex, Seaton Village, Little Italy etc. are selling for 1.2-1.4M – today … this is after the “adjustments”. Precedents have been set and pending on what you’re looking for, don’t count on prices dropping a further 30-50% for you to make a decision. Why? You’ll wait forever, or never Buy – and we’ve seen this happen. People get caught in analysis paralysis and try to “time the market”, which doesn’t work!
Q: Ok, so what should I do?
A: If you’re Buyer, stay true to your expectations relative to your Budget. If you have “champagne taste on a beer budget” – adjust your taste. Don’t sit and wait for the “perfect property” to come along, as you’ll likely not find it. The market has already adjusted significantly and a home that you may have once thought was unattainable is now within reach – go for it! If you’re an Investor, same thing, but always crunch your numbers first. Numbers don’t lie, and give you a quick way to say ye/ne. But most importantly, and we can’t stress this enough, don’t try and “beat the market” or “time the market” – simply realize that what was once out of reach is now attainable – so stop speculating and start acting. Jan-Mar this year, Buyers would have loved to have a 2nd crack at many properties, and today, they have tons of options available to them, and yet they act differently in that they believe there’ll be better – but the grass isn’t always greener on the other side. And just like Realtors, Economists, Mortgage Brokers and so on, couldn’t help predict a price increase of 30-50% followed by an adjustment period (fueled by Gov’t intervention and other) – they won’t be able to predict the Jan-Mar 2018+ market. So what’s our suggestion? Appreciate your current circumstance, work within the confines of your requirements & budget, don’t get “greedy” and act accordingly.
Q: What if the market goes down?
A: What if the market goes up? Define your needs and timeline. If you’re an end-user, and plan to go 5-7+ yrs, don’t worry, you’ll be fine. If you’re an Investor and would like to cash-out sooner, run your #s and see what makes sense to you. But regardless, the key difference today vs. early 2017 is that today you have options, you have inventory, you have fewer offer bids (i.e. you can actually purchase as 1 Buyer vs. 1 Seller and not 10 Buyers vs. 1 Seller) … so don’t let fear slow you down!
I’ve always been a big nature buff and one of my favourite wonders is the Wildebeest Migration! One in which millions of animals have to cross several rivers during their trek, rivers that house predators like crocodiles who will pray on them. Despite the dangers, the wildebeest have an inherent instinct to keep going – despite their fear. Naturally, some get caught. But, a huge majority cross and survive to breed and push forward their gene pool.
Human behaviour, whether we’re talking Real Estate or about something else, isn’t all too different. As humans, we are programmed to listen to our fears so as to protect ourselves & ensure survival. At the same time, survival often depends on facing your fears. Like the wildebeest, some people will take the plunge first, and some may make mistakes, but in the end, to cross and come out on the other side, you have to make a decision and commit to it!
Relating this to our market conditions, think of yourself as one in a million. You are waiting to cross the river, not sure of what lurks beneath. You think to yourself, there might be a drop, so I better not take the plunge. But you know you have to cross, eventually. So when? Timing it doesn’t work, because the herd will move quickly, and once the movement starts, it’s like a freight train and difficult to stop. So, if you’re in 2018/19 and all of a sudden you see prices are increasing again, you might have missed your chance to “cross”.
The opportunities today are what you should measure – don’t try and predict the future too much. If it makes sense now, go for it and worry about your next move when it comes!
Written By Amir Shahi