The real estate market taking a downturn after so many years came as a shock and left many wondering what to do. Serious questions remain over where the market is heading into the fall. to help, we assembled our crack panel of experts from our annual Post City Real Estate Roundtable to help us make sense of what’s going on and where we go from here.
Barry Cohen, Luxury Homes Specialist; Principal, Barry Cohen Homes Inc.
Odeen Eccleston, Co-founder, Wiltshire Eccleston Developments
Brian Gluckstein, Principal, Gluckstein Design; Author
Brad Lamb, Developer, Lamb Development Corp.
Michele Romanow, Dragon on CBC’s Dragons’ Den; Co-founder & President, Clearco
Benjamin Tal, Deputy Chief Economist, CIBC Capital Markets
POST CITY: What do you predict for the fall market both in the 416 and in the suburban 905 region, and how far can home prices drop?
BRAD LAMB: Currently, the number of homes for sale is quite low, and I believe that will continue. Most vendors currently for sale are trapped in a situation where they bought a property and need or want to sell their current property. We are seeing many vendors rent instead of continuing to sell. I doubt prices will fall much at all except for isolated individual sellers, which will appear like falling prices. I do believe that we are in a recession and it will last through the year, with interest rates aggressively being cut in the new year. My advice to anyone during these 6- to 12-month corrections is not to panic, do not sell. They represent buying opportunities. It is possible to find a motivated vendor that might save you 20 per cent over what it might have cost you six months ago. These corrections never last very long and before you know it prices are back above the correction.
BENJAMIN TAL: I think the fall season will be OK. It will be a more relaxed market relative to the past few months.
MICHELE ROMANOW: Fall will be interesting for the area as I definitely think we’ll see an uptick in volume from the notoriously slow summer. The 416 and suburban regions will continue to be popular with younger buyers who want to be in or close to downtown as most companies have returned to a hybrid working model. We’re definitely past the peak of the market, which is a net benefit finally swinging in favour of buyers. We’ll continue to see calculated drops in prices, but so much depends on how high mortgage rates will go and how those rate hikes push more buyers into renters.
ODEEN ECCLESTON: In addition to the impact of interest hikes, we must remember that June, July and August are typically slower months for real estate. Further, this summer has been the first time Torontonians have been able to enjoy a “normal summer” in two years. As such, many people have been focusing on leisure time by visiting family and friends, heading to cottages and travelling out of province or out of the country. As fall settles in, I think we may see increased consumer interest and activity in both the 416 and the 905.
BRIAN GLUCKSTEIN: I think there is going to be much more caution and less of a frenzy than we’ve seen. If there’s a particular property that someone really wants, they will buy it, but otherwise, I think people might be sitting on the sidelines to see what’s happening with interest rates, what’s happening with prices and maybe pausing their purchase.
BARRY COHEN: The 416 and the 905 are very different markets at this juncture. While both are expected to see an increase in the number of homes listed for sale, supply is more constricted in the 416. At the time of writing this response, there were only 570 detached houses listed for sale in all of central Toronto, which is very low from a historical standpoint. True, the summer months are typically a slow time for sellers to come to the market, as many travel and go to the cottage, but the dearth of listings has been further exacerbated by sellers holding off on their decision to sell because of rising mortgage rates. Once the kids settle back into school, we should see more households make decisions on whether to upsize, downsize or stay put.
Most sellers today are either waiting for a more realistic price or waiting for the market to improve overall. Buyers and sellers that traded in the last few months did so out of necessity (either bought or sold before the rates rose, relocating, family changes, etc.), but I am encouraged by the amount of showings we are receiving, even in the middle of August. I expect to see the decline in prices to level off in the 416 because of tighter market conditions overall and an increase in transactions. Demand clearly still exists, but concerns over interest rates and recession are having an impact.
As for how much further prices could come down, RBC recently released a report that forecast a 23 per cent decline in average price in 2022. That’s already happened — with the average price down 23 per cent from the peak in February. Once we start seeing a more normal amount of transactions, prices will level out, but I don’t think it will drop much further. The 905 region has seen a greater decline in average price, but that may just be an overreaction to rising rates and buyers moving back into the 416.
POST CITY: Should homebuyers consider waiting to buy until 2023 when the market is predicted to bottom out?
ECCLESTON: I think homebuyers should buy precisely when they are ready and able to comfortably afford the home that they believe they desire. The purpose of purchasing property is not solely for investment purposes. It is also to improve one’s quality of life. I don’t believe buyers should play the waiting game. I think they should buy when the time feels right for them and their families.
TAL: Timing the market is impossible. I think that the coming few months will provide a reasonable entry point from a long-term perspective..
ROMANOW: If homebuyers can wait, it seems like supply will increase and prices will level out, tilting the scales in favour of buyers. The big difference between 2008 and now continues to be supply. There is no influx of housing that leads to dramatic price crashes. Just like the markets, we’re in a bit of a correction period, and most people can agree prices over the past two years have been inflated, so instead of a bottom out, we’ll see smaller, incremental price decreases, especially if the Fed continues to raise rates.
LAMB: No, now is a great time to buy. Prices will likely bottom out in the fall. Of course, this is my opinion, and timing the worst and best time to buy or sell is a tricky business.
GLUCKSTEIN: In the long run, housing prices have increased over time, so if it’s something that someone’s going to buy and stay in for a very long time, even if it goes a little lower in the next year, it will always come back up. If it’s something they’re going to be in temporarily or if they’re purchasing the property as an investment, maybe they should just wait and watch the market.
COHEN: I wouldn’t wait. You can never time the market perfectly. Who would have predicted that housing values would surge during a pandemic? The market is underpinned by solid economic fundamentals. We have a government policy aimed at increasing levels of immigration. Unemployment is at its lowest level in 50 years. Interest rates are STILL at historic lows. There is a lack of developable land and homes available. The last census identified an increase in single-person households. Real estate has historically proven to be a long-term investment.
And yes, in the long run, prices will continue to rise. I don’t believe a buyer who plans to live in their purchase for five years is going to look back when they sell and say to themselves “I wish I’d bought in May 2023, not October 2022.” If the property makes sense for the buyer, it’s in a good location and not a short-term buy, they will do well in the not-too-distant future. The Bank of Canada’s aggressive approach to curb inflation seems to be working. The cost of goods appears to be heading in the right direction. If the BOC [Bank of Canada] slows or stops hiking rates, we could run back into the same old problem of not enough supply and pent-up demand sooner than you think.
POST CITY: How much higher can interest rates go?
TAL: The five-year rate has probably peaked. We see the Bank of Canada’s overnight rate rising to 3.25 per cent and staying there for the duration of or most of 2023. The risk is that inflation will be more sticky. In this case the Bank of Canada will be more aggressive — a situation that will hurt the housing market.
ROMANOW: I fully expect the Bank of Canada to raise rates at least one more time this year, but we should be sure to make the distinction between interest rates rising and mortgage rates, which while higher than the record lows of 2020 are still in line with the historic lows of the 2010s and significantly lower than any other time over the last 30 years. Mortgage rates were pushing 20 per cent in the early ’80s, so in context, these rates are just slightly inflated.
LAMB: I do not think they will go more than one per cent higher. I believe that we are already in a recession, and I think consumers are now shellshocked. Most items are starting to fall or are stabilizing. Prices do not have to fall year over year to have low inflation, they just can’t go up. Many prices are here to stay. We need to stop future price hikes, which I believe are in process. I believe the Bank of Canada will start reducing rates in the early winter. Governments always overkill the economy when raising rates to fight inflation.
ECCLESTON: According to the Bank of Canada, their goal in raising rates is to get inflation back to its two per cent target from its record high of eight per cent earlier this year. I suppose as long as inflation is a significant issue, BOC will continue to try to combat it by raising interest rates.
GLUCKSTEIN: We’re going to see a number of increases in interest rates within the year, so they will go up, but we just don’t know by how much and for how long. If inflation starts to slow down or decrease, there might be a pause in interest rate increases, but there definitely will be increases.
COHEN: I think analysts are predicting an overnight rate of three to 3.5 per cent.
POST CITY: Is there a chance the market defies the rate increase and actually rises this year?
ROMANOW: I just don’t expect significant price increases this year given what the market can bear and has been through over the last two plus years. The GTA continues to be an incredibly desirable place to live and work, and with the influx of global companies opening offices in the region, the market has shown an increased stability. I’m not expecting any drastic increases or decreases in price and value over the next year or so.
LAMB: No chance of that. Medium- to long-term, the real estate economy in Toronto is in a crisis. Too many people chasing too few properties, and it is almost impossible to develop real estate in Toronto. Prices are going to rise forever, sprinkled with short-lived economic corrections, which are just buying opportunities. Toronto will be one of the most, if not the most, expensive cities for real estate in the world.
TAL: The market will adjust to higher rates but we have not fully adjusted. The market will continue to show some softening in the near term. Ongoing project cancellations suggest that a year or two from now there will be shortage of new products alongside growing demand leading to some upward pressure on prices.
ECCLESTON: I think in niche markets such as luxury custom homes (both in the 416 and the 905), it is possible that we’ll continue to see small rises in value as they remain rare products with strong demand.
GLUCKSTEIN: No, I do not think so. I would be surprised if the market defies the rate increases. I don’t think that’s going to happen. I think it’s more challenging for many first-time buyers to get into the market, both because of higher interest rates and the stress test making it more difficult for them since they may not qualify for the price point that they qualified for a year ago.
COHEN: Although there may be a chance, I wouldn’t be so bold to bet on it, given the downward pressure on average price in the last quarter. The average price statistic currently reported is based on a fewer number of transactions because there are fewer sellers in the market, and even less that are willing to sell at a price buyers feel is the new market norm. Once we see an increase in the sales volume that comes with a traditional fall market, we’ll have a better idea of where the market is headed. Right now, I am seeing some really strong sales and a few ugly ones. But when I see the overall statistics reported, it’s shocking to me because my feeling is that the market is a lot stronger than what is being bandied about. So yes, it wouldn’t shock me if we saw an increase in prices from where we are today.
POST CITY: Isn’t the slow down a good thing now that my kids’ generation will be able to afford a home? What’s the downside?
ROMANOW: Supply for homes and condos still continues to be lower than we need. We need smart and controlled increases in housing stock to be able to truly understand who holds the upper hand, buyers or sellers, and in order for this market to be operating at its peak, it can’t dramatically favour one or the other. Currently, while home prices may have dropped year over year, with inflation and rising mortgage rates, many individuals and families are actually paying more monthly in housing costs and not having as much equity in their homes. So while cost may look lower at first glance, all-in prices have actually risen and first homes are still unaffordable for many.
LAMB: Nothing has changed, Toronto is doomed to be one of the most expensive cities in the world to live in, and nothing is going to change that. In the midst of this spiral upwards there will be buying opportunities, such as today.
ECCLESTON: I believe the trajectory of the market was unsustainable over the past two years. I welcome this current, more balanced market and believe the outlandish competitive environments we’d been experiencing went on for longer than it should have. I’ve been a realtor for 14 years, so this current, slower market is reminiscent of markets I’ve experienced in the past.
TAL: After rising by close to 50 per cent in two years this is a very welcome adjustment. Remember that we were borrowing activity from the future during COVID and the future has arrived. It’s simply allocation of activity over time. Note, however, that even after that adjustment the GTA will be far from affordable.
GLUCKSTEIN: Well, I don’t think there’s a downside necessarily for people that are in it for the long-term. It’s like the stock market: if stocks go up and down, you’re not selling them every day. You’re in it for the long-term and hopefully for your retirement. They’ll go back up similarly for the housing market, but right now the decrease in housing prices is not making it more affordable because your interest rates are significantly higher than they were a year ago. It’s almost balancing itself out. I don’t think this is going to make it more affordable unless we see a significant drop in prices, and I don’t see that in major metropolitan areas. Maybe in the suburbs you’ll see a larger decrease in home prices, but in the cities, like Toronto or Vancouver or Calgary, I think strong markets are going to continue to be strong markets.
COHEN: The decline has no doubt made housing more affordable for the younger generation, but higher carrying costs in terms of interest rate hikes have negated any upside realized from lower prices. However, if the trend continues, it does make sense for buyers to jump in the market now.
POST CITY: Will we see more people choosing to sit on the sidelines and upgrade their own homes in the year ahead? What will be the home reno trends to watch for?
ROMANOW: The HGTV generation is definitely here to stay and permeating across all budgets, from DIY projects to high-end home renovations. In 2020 and 2021, we read a lot about bettering one’s self, and 2022 feels like the natural progression of that with bettering one’s living and working space, to optimize space and to create more value for resale. A few things I continue to keep my eye on are upgrading of outdoor spaces to be livable year round as well as smart home devices, whether that means lighting, appliances or even larger items like whole home generators, tankless water heaters and boilers. These have higher upfront costs but almost always pay off in the long run.
Additionally, I do expect to see more people opting to rent, which will drive the rental market downtown even higher.
LAMB: If buyers sitting on the sidelines are smart, they will jump in now. This opportunity won’t last long. People will likely continue to renovate their homes because selling costs are very high.
ECCLESTON: As interest rates increase, I think we will see more people selling. Those who decide to hold on to their homes may wish to renovate. I think many will opt for new bathrooms, kitchens and swimming pools.
GLUCKSTEIN: The prices of homes have become so high, so the gap between what people live in and what they have to spend to upgrade to the next level has become so large that many people have decided not to sell, but instead renovate their homes. I think that’s been happening for a while. When people look at their options, they’re just finding the prices too high to move, and I think that’s going to continue.
COHEN: Yes, that’s entirely likely. The decision to renovate will add value to those homes and should serve to further protect prices from coming down while everyone adjusts to the change in the market and financing. Some of the trends we saw during the pandemic will continue, including home theatres, gyms, pools, offices and heated/covered porches. I think these renovations will continue out of fear of being locked down again.
POST CITY: Toronto is lagging behind other cities when it comes to workers returning downtown. When, if ever, will this change and what are the real estate market impacts especially on the condo market?
ROMANOW: I am a huge proponent of in-office culture and love the energy sitting around whiteboarding and solving hard problems with our team. I just don’t think that level of collaboration can be recreated over Zoom. That coupled with flexibility means we’re seeing more demand to return to downtown living. As we move into the fall, I expect more employees to return to the office multiple days a week without their employers needing to mandate it. We’ve already seen that shift, which just helps the entire downtown economy, from lunch spots to happy hours and everything in between.
LAMB: Employers with backbones would help [bring more employees downtown]. Government with vision and a dose of reality would also be nice. Some good things came out of the recession. Zoom is a useful tool. Life is not really worth living if it is always spent alone at home. I believe humans know this. Likely that this just happens naturally over the next one to two years.
ECCLESTON: The issue is that people have grown accustomed to primarily working from home, so much so, they are resigning from positions that require in-office work days. The reports of continually high COVID infection rates and other contagious viruses being spread, such as monkeypox, don’t help the employers in this regard either. It will be a challenge for employers for the next few years, and I believe commercial real estate values will be impacted the most as a result.
COHEN: I think that most large major centres are facing the same challenges with workers returning to the downtown core. However, there seems to be a more concerted effort to get workers back into the office in Toronto, and in some instances, workers have been mandated back. The financial district does appear to be coming back to life, with lineups now reported outside food franchises in the Path. Foot traffic is also up.
The condominium market has certainly bounced back from those dark days in 2020. We saw a real comeback in 2021, with strong sales for both condominium apartments and townhomes, and demand has been relatively steady in 2022 as people return to the core. We’ve also seen a shift in the downtown condo market, with many sellers now choosing to rent as opposed to sell, as they capitalize on the hot rental market.
GLUCKSTEIN: I think we’re still on that recovery from COVID. It’s like the hangover from COVID where no one is sort of really back to themselves. I think people need to work together, to have that interaction, and I do think people will come back to work in the city. And regardless, when it comes to major cities like Toronto, people still want to live in the city, so I don’t think that’s really going to impact the condo market. Whether people work from home or in office towers downtown, I think many people still want to be in the city. I don’t think the condo buyer is going to want a condo in the suburbs. If they want a condo and they’re living in a small space, the whole point is living in the city and taking advantage of it.