November 28, 2022 | Toronto Real Estate Market
It may feel like there are few winners when it comes to Toronto real estate in 2022. When rates go up as much as they have, both buyers are sellers have felt the pinch. Sellers may have to adjust to lower prices than they were expecting earlier this year. Buyers may revel in the lower prices, but their monthly mortgage payment do go up significantly when you factor in the increased mortgage payments.
Still, there is always someone who can benefit from a shifting market and 2022 is no exception. So, let’s have a look who could come out on top this year.
BUYERS MOVING UP FROM A CONDO TO A HOUSE
There is a rare window of opportunity opening up for those individuals who are living in a condo looking to purchase a house. In 2022, houses, particularly detached houses, have taken the hardest hit of all in terms of price. The price gap between condos and houses have fallen significantly this year. According to Outline Financial, the gap between condos and houses in February of 2022 was 125%. Houses in the GTA were averaging $1,790,000, and condos were around $800,000. Fast forward to July of this year, and the gap shrank to 90%. Note that the stats for September and October of this year would have very similar price gaps as prices have levelled off for both condos and houses in those months. This price gap has a very similar trajectory to what happened in Toronto in 2017. Back then, there was also a parallel drop in the price gap. The price gap peaked in April of 2017 at 122% between condos and GTA houses, By August, the gap had fallen to 90% making it much more appealing for buyers moving from a condo to a house. This price gap began to spread apart again after 2017, but I don’t think we should be looking for clues in 2017 to see how long the price gap will last here. It may be short now, like 2017, or it may last longer.
INVESTORS IN MULTIPLEX INCOME PROPERTIES
Investors are very sensitive to interest rate hikes. Their choices on what to buy and sell are all about the numbers. So, when cooling off began this past winter in Toronto, many investors stepped to the side. It goes without saying that interest rates have put downward pressure on any investment, and it is more costly to carry a mortgage. That certainly does not appeal to investors in any way. Still, the cost of houses are down. On top of that the rents have gone way up. 24% year over year in Toronto. You are far more likely to have significantly higher rents, and your choice of tenants is better now more than any other time in recent history. The rental vacancy is so low and rents have gone up so much from the lack of rental inventory that investors have the option to see some good income coming their way. The fact that so few buyers are buying right now will also keep many buyers in the rental pool a little longer.
THOSE WHO HOLD THEIR PROPERTIES
Maybe you are not an investor or a someone who wants to climb the property ladder from a condo owner to a house owner. Maybe you are someone who bought a house at the peak of the frenzy earlier this year. No doubt the endless media coverage of falling house prices and rising interest rates are not making you feel great about your purchase. You took a risk. And so far, it does not seem to be working out for you. Just remember: This is real estate. We cannot always know what’s coming. We have a growing economy, new immigration targets and a regional supply problem underneath all of these interest rate hikes. Once the interest rate hikes have levelled off, and the recession worries subside, then prices will begin to head up once again. So, you simply have to hold your property. There will be less stormy days ahead. This slow-down won’t last. If you hold your property for some time, you will come out on top. So, those who are playing the long game will eventually benefit from their purchase. Maybe not as soon as they would like, but it will turn around.
Almost every uncertain market sends buyers and sellers to the sidelines. And for some of you, that’s exactly where you should be! For others, be aware that during times of uncertainty, opportunity may come around for some of us. You just have to be brave enough to fire off at the right time for you -though it can be tough to find the absolute best time until it is about 3 months behind you. For some of you, this is an ideal market to make your move. There is always some element of risk, but remember that this is still one of the most buyer-friendly markets I’ve seen in awhile. The key is to know exactly where you stand in this market and what bargaining chips you have available to you.