October 21, 2022 | Toronto Buyers 2022
In the rapidly changing market of 2022, I’ve worked consistently with buyers through all of the ups and downs of the Toronto real estate market. As you may expect, my consultations are always different depending on what the client would like to buy. It’s not a one-size-fits -all approach. The advice I would recommend to each buyer would be different each time depending on neighbourhood, the type of property and the property itself. Still for 2022, the biggest indicator of how a property would sell has to do with timing. Interest rates have been the biggest force when it comes to buying and selling real estate in Toronto this year. They have been responsible for changing the Toronto real estate market from mostly a sellers’ market to a mostly buyers’ one. The Toronto real estate market began to enter what I would consider to be a predominantly buyer’s market in late May of 2022.
It’s been such a rare moment when Toronto buyers find themselves in one, I think it may be important to outline just how the buyers’ market of the spring has changed when we arrived in autumn. Not all buyers markets are built the same.
The biggest difference between the spring and fall market for Toronto buyers has to do with who is selling property. In the spring many of the sellers were also buyers. In other words, the many sellers of the spring had already purchased a property this year before they had to sell their own property. In order to close on the property they purchased, most had to sell the property they were moving from. There was no choice because the bank would not allow them to carry the mortgage of the new purchased property and the property for sale for a long time. Many sellers required the money from the sale of home to fund the new home. And with no choice for the sellers as to whether they could or could not sell their home, the buyers negotiation advantage was much better. The seller is under pressure to sell their property, and will have to make more concessions to the buyers.
This fall, the sellers are different. There are those that still do need to sell because they purchased a property, but there are far fewer of them. The often utilized strategy of “buy first and then sell” your property is not as popular as it used to be when the market was more robust. In many cases now, it is wiser to sell first before you buy your property so you don’t feel under pressure to sell your home. This fall, I am seeing more sellers who would do not need to sell. They are choosing to sell now, but do not have to sell under the time constraints give by their lenders. They have not bought a new property. So, if they don’t get the price they want, they are more likely to remove their listing from the market, and wait for a better time to sell. They may also decide to rent out their property instead. After all, rents have risen quickly this year, and it has become much easier to rent than to sell. This may mean you have less leverage on price with some properties. When seller’s don’t receive the price they want, they simply don’t sell. Of course, prices are down because of the higher interest rates from the spring. So, buyers do have the advantage of lower prices albeit with bigger interest rate payments.
In the spring, sellers would be more likely to drop their price in negotiation because the buyer had the leverage that they had to sell their property. Nowadays, in the fall, the prices don’t necessarily need to come down. It’s sometime called “sticky pricing” where prices will stick unless people have to sell. In the spring, prices were falling month over month. In the fall the sticky pricing is leads to prices remaining constant or adjusting very slowly up or down. But why are prices still coming down right now this fall in Toronto according to the stats? Well, it’s for two reasons:
1. Much of what is selling right now in the fall tends to be starter homes and condos. The luxury or move-up market is slower. With less higher-end properties selling, the average selling price tends to skew lower than usual, even though the starter home prices are still steady. So, it may appear that prices have come down in the fall in some, but in reality, many of the sales have been with properties that generally have a smaller price tag.
If the market trends downward for an extended period of time beyond this fall, we may see that sellers have to sell again. If sellers are under enough strain with the interest rates, we may see sellers who need to sell because they can no longer comfortably carry their mortgage, not because they just purchased a property. This time it won’t be because they purchased a new property, but because they cannot hold the one that they have – likely purchased in the last two years. I don’t know if this time is going to arrive. I don’t think it is. It is certainly not here yet. For now, this does not seem to be an issue.
Overall, negotiating a lower price may have been easier for buyers in the spring, but now that we have the sticky pricing of the fall, negotiations can be tougher when the seller doesn’t have to sell. Right now, we are seeing more sellers who may just wait to receive the price they want rather than having to sell. Buyers, I would not be very discouraged by this. This is still a very good market to buy in. We have time to see properties. Even though interest rates are up, we still have lower prices. More importantly, we currently negotiate on price more than compete to win a property in a multiple offer situation. Even when some properties sell in multiple offers, the offers tend to be more aligned with market value instead of the highly competitive markets we’ve seen earlier this year.