December 15, 2022 | Toronto Real Estate Market
There are certain things you can’t see coming. Looking over the last 3 years, who could have seen a pandemic, threat of nuclear war and seven interest rate hikes in one year coming our way? Still, I have to give myself a small pat on the back for getting some things right for my Toronto real estate predictions of 2022. Last year, I boldly stated that inflation would be an issue, but I may have understated just how much the impact would be in 2022. Most of the world (and I) were not expecting the huge impact interest rates would have this year. I also have to admit that my predictions were fairly safe going into 2022. I didn’t really go out on a limb. I based them on what was happening and what I was learning from the previous year.
That said, let’s go over what were the big drivers of Toronto real estate this past year.
INTEREST RATE FEVER
Here’s what I predicted last year for 2022: “If we do have enough interest rate hikes next year, we may see a dampening of the prices, but likely a frenzy of activity before we do.”
And well, that really did come to pass, though I did not expect we were going to have seven rate increase hikes. And the fact that I said “may” dampen the prices was certainly the understatement of that prediction. Around the Fall, I also stated that the interest rate hikes may start to abate. I was dead wrong.
So, I may have called that interest rate hikes were going to be impactful, but I certainly underestimated the size of the comet. Now, I feel we can say that interest rates were the driving force behind much of real estate decisions made this year – that was certainly the case with many of my clients. Regardless of the 4.25% in interest rate hikes, life still went on as usual for most of us. Properties would be bought and sold, but we were always very aware of when the next announcement regarding interest rate hikes would be, and how that may change how we buy and sell real estate. Interest rate hikes took the reins of Toronto real estate and guided it downward for much of the year. We went from real estate price highs in the winter of 2022 to slipping prices all the way to July, though prices seem to have levelled off in the last 3 or 4 months of this year. See this vlog for a breakdown of the years price stats in Toronto.
SIDELINED BUYERS AND SELLERS
Though there were buyers and sellers who carried on business as usual, some decided to try the wait and see approach. At various points during this year, many potential sellers or buyers decided that they would rather not jump into the real estate market in 2022. For some, the market was too unpredictable or too strange for them to partake. Their comfort level was not agreeing with 2022. I suppose it is somewhat healthy that both buyers and sellers decided to go to the sidelines this year. It creates a certain equilibrium. But with both buyers and sellers on the sidelines, the number of transactions were remarkably low. As an example, October 2022 had the fewest transaction of any October between 1996 to now. It was almost half the transactions in Toronto compared to October 2021. To put it bluntly, buyers were not buying as much, and sellers were not willing to sell in this market either. 2022 was not full of panic really. There were sellers in the spring who did need to sell because they had already bought a property earlier in the spring or winter. I felt that by the fall, there were fewer of these sellers. Sellers who didn’t receive the price they wanted, just pulled their listing for another day. I will say that all of those sellers and buyers who have been sidelined will be willing to step back in again when the market feels safer. So, we may see a rush of buyers and sellers come back very quickly at some point when it’s not 2022.
THE TEMPORARY DEATH OF FOMO (Fear of Missing Out)
When you factor in the interest rate increases to the falling prices, buyers are not necessarily coming out on top. The price may be lower this year, but with more interest to pay, the overall mortgage payments with the higher interest rates may be similar to prices earlier in the year with higher prices and lower interest rate payments. That said, by May of 2022, buyers began to receive more of the red carpet treatment. For much of the past twenty years, buyers were often made to engage in competition to land a property. They were given days (or sometimes hours) to present their offers. The expectation from sellers was that buyers should not have any conditions in their offer. And some buyers would present a bully offer to the seller before the selected offer date to try to have the seller sell their home sooner than planned. Some houses would be on the market less than 24 hours before they sold.
In most of 2022, things changed. Buyers could negotiate on price. In previous years, I could take buyers out to see five properties one night and have two or three sell with a bully offer by the morning in some hot markets. In the second half of 2022, that didn’t happen to me once. There were very few bully offers. Buyers could make conditional offers. 2022 had a win here for buyers. The process was much easier. It was a lot easier to land the property you wanted. If you disliked having to compete for a property, 2022 was your best year for that. It may have been an unpredictable year, but it’s a good year to find the kind of property you like. It felt good for buyers to explore properties and not be rushed into a decision
It shouldn’t be any surprise that July had the lowest prices in Toronto out of all twelve months of the year. In a typical year, July and December often have the lowest prices because there are fewer transactions in those months, and the better properties often tend to come out in the spring and fall. That said, we have not had a typical year for quite some time. Why a low July is remarkable in 2022 has to do with the previous four or five months. Prices fell month over month from March until July. Usually prices peak in May, but they didn’t this year – they just keep heading down. I think the bulk of the downward pressure was from early spring to mid summer. The fear felt like it was the thickest then. The level of uncertainty was high. The threat of rising interest rates were, in many ways, scarier than the actual rise in interest rates. Though interest rate hikes continued, prices plateaued, though there are no guarantees that prices will stay levelled-off next year. They could still go down depending on what happens to inflation.
LITTLE LOSERS, BIG LOSERS AND THE SURPRISED WINNERS OF 2022
There are a lot of little losers for 2022. Those who took a variable rate early this year. Those who bought first and had trouble selling their homes. I would say that those who were the most at a disadvantage this year were those who bought a pre-construction condo. If your pre-construction condo was finished this year, it was likely worth less than what you paid for it. If it’s going to be finished in the future, you may still have the real estate market turn around before then, but because sales of pre-construction condos are so low, we may have some projects cancelled altogether.
Despite those who were caught in the downdraft of this market, there are always those who had some good fortune in 2022. Every market has those who can benefit from the current state of affairs. There were winners too: Those who moved from condo to house in 2022 and saw the price gap shrink between houses and condos. In other words, houses fell more in price than condos, making it easier to make that leap this year. It was also a good year to be a landlord/lady. Rents went up 20% or more in some areas, year over year. It certainly was not a good thing for renters. The renters market in Toronto has completely evaporated. With less people buying, there were more renting. There were also more people returning to the city this year.
Now, with 2022 almost behind us, should we look ahead to see what may be in the works for Toronto real estate in 2023? Well that may be the subject for the next blog. This one is all about the year we are wrapping up. If you want a better idea of what caught the attention of my Toronto real estate blog readers in 2022, here are my top three most viewed blogs of the year!
TOP 3 BLOGS OF 2022