It seems that 2023 may have started at the O.K. Corral where buyers and sellers in Toronto real estate have been pitted against one another in the longest stand-off we’ve seen in decades. We are at a moment two months into 2023 where both sides have their hands hovering above their holsters waiting for the other side to make a move and just fire off and get back into the market. You would usually not expect this stand-off moment to last very long, but it seems that this one has been happening for much of the second half of 2022 and the start of this year.

It’s not the first time we have seen a stand-off where buyers and sellers have greatly reduced their buying and selling habits for a period of time. We had a similar stand-off after a strong run-up in Toronto property prices in 2017, but that lasted from the spring to the summer when the buyers jumped back in and we continued on our upward price trajectory. In 2020, we had a very understandable stepping away from the Toronto real estate market when Covid was an unsettling mystery, and lockdowns were at their peak. Still, even during Covid, the market really only slowed down between March and May of 2020. This latest one has been going on for almost 6 months and counting.

In many ways, buyers and sellers are reacting to the same things. With seven interest rate hikes in 2022 and one in 2023, buyers and sellers began to step to the sidelines because it felt too uncomfortable to be part of an uncertain and slow real estate market. Many buyers and sellers stopped participating in the market, and just watched instead. With some in-demand properties, you may still see a lot of buyers walking through and viewing properties, but many of them are not ready to actually make an offer. They are still looking but starting fewer transactions.

Many sellers think: I will wait until the market is better so I can sell at a more favourable price. I will delay my plans until the market is better, and I can make a better profit. Many buyers think: I will wait until the market has reached the bottom before I buy so I can have the best deal. And the result? Transactions are down. Way down. There is not the excess of buyers leading to the fast-rising prices we’ve seen in Toronto for many years, and there are also fewer sellers which means very few options for buyers who do wish to buy.

In January transactions were down by almost half compared to 2022. They were down 46%. So far in February, we don’t know the numbers just yet, but it feels very much like January.

Despite this, I should be clear: Though there are fewer transactions, transactions are still happening. The market has not stopped. Properties are selling. In-demand properties still do receive multiple offers, though far less often than a year ago.

So, what’s going to end this stand-off. When will there be more transactions? What will end this stand off?

INFLATION ENDS

The same thing that started the stand-off in the first place will end it. In other words, once we see a strong signal that the inflation numbers return to a place where the Bank of Canada will stop frequently raising interest rates, both buyers and sellers may feel their footing is much stronger. The thing that was holding Toronto real estate ransom will end. And in this scenario, we may see a strong come-back of buyers as they try to cash in at what they think is the bottom of the real estate market, and prices will go up quickly.

Of course, inflation may not end. Though there has been some indication from the central bank that the hiking of interest rates will slow this year, they are still willing to jump back in and raise rates again if inflation doesn’t come down.

THE OTHER SIDE BLINKS

This is the most likely scenario, in my opinion. I think there are a number of buyers and sellers who will grow tired of waiting. They will want to move ahead with their lives. Buyers will be tired of waiting to buy a property. Some buyers will marry their significant other and will want to buy a home together. Some buyers will move to Toronto for a job and will not want to rent. They will want to get on with their lives wherever they are. Same goes with sellers. Some will grow tired of living in their empty nest, super-sized house and delaying their retirement to Portugal. Some will finally buy the move-up condo they have been longing to find in the neighbourhood where all their friends live. They will make that move-up or downsize because life has to go on. You can only wait out the market so long. I don’t know who would get tired of waiting first. I suspect it may be the buyers, but it’s tough to know.

THE POWER OF FEAR

I suspect FOMO (the Fear of Missing Out) will be back once the market takes the slightest uptick in price. The rush to cash into the bottom of the market will be the cause of its quick return.

Of course, fear can happen on the sell side too. That would be the fear of the market becoming significantly worse. This would lead sellers and investors to unload their properties before they drop any further in price. I think this is less likely. I would say that we are more likely to stay in a stand-off than to see prices take another significant ride down after levelling off for 6 months.

Unlike the usual stand-off in the Old West, there is not a white hatted hero or a black hatted villain. Both sides have their own interests, and neither can be called the villain. Still, you may be wondering if this is the best time in recent history to be a Toronto buyer. You may be wondering if it may be a good time to list a property as a seller because the inventory is so low and because you also may wish to buy in this market. Well, that depends on you and the property. It’s not a one size fits all.

Just know that with enough time, the reservations or fear of the market that people have will give way. In these times when things have slowed down, the number of buyers and sellers waiting in the wings and delaying their plans is continually growing. So, there will be days ahead when the number of transactions will start going up and pent-up demand will break through.