July 27, 2022 | buyers
If I asked the question: “Who should be buying Toronto real estate right now?” I just know there will be those people who are going to be tempted to type “Nobody” in the comment section. And maybe they would be right. After all, prices are coming down (and possibly still coming down) across all property types this summer. Rates are going up eroding your purchasing power. There is an air of uncertainty around real estate because some properties are not selling or not selling fast enough. There are some buyers out there, but there is also a lot of lookie loos just seeing what’s on the market, waiting for some signal that the bottom has arrived, before they jump in and purchase. There is a lot of tentativeness on the market, and we don’t really know when prices will start to turn around. Though we are in a different scenario, it does remind me of the “waiting on the sidelines”approach I remember when the Toronto real estate market locked up in the spring and summer of 2017.
We do know one thing: The number of people buying properties has come down significantly for most of 2022. So, there is a growing number of buyers waiting in the wings to purchase.
Why are the number of buyers growing? Well, we are still a growing city with significant immigration to come with a lack of inventory and not much of a plan to build more inventory. The problems with the lack of inventory has not gone anywhere. For now, it’s just hidden under the interest rate increase bonanza underway this year by the government. Prices are down in Toronto. The decrease in price, however, is almost equivalent to the increased cost of purchasing a new property factoring in the increased rates. Of course, this may vary depending on property and region of the GTA. We don’t know when this is all going to end. It may be as early as the fall when there is some signal that inflation is slowing and the interest rate hike machine may be slowing down. Maybe it will be in 2023 when things turn around.
There is one thing that is happening right now in the Toronto real estate market that is not falling in price: Rents. Rents in Toronto are going up very quickly. I’m not sure if there are more renters because buyers are choosing to rent right now over buying or if there is a return to the city now that we are more comfortably living with Covid for over 2 years. Any way you think about it, rents are on the rise. They did fall off during Covid, but they have climbed backed and are now surpassing pre-Covid rent numbers. They are up just over 20% from June of 2021 to June of 2022. I had a rental unit to lease that I listed on a Friday of last week. The listing was added to the MLS on Friday morning. In less that 24 hours, I have 5 offers including one offer where the tenant didn’t ever see the property. He would take it sight unseen. On top of that, my inbox was barraged with emails from renters looking for a unit. The unit was near Bathurst and Front Street. It was a central location, but no parking or locker. We were able to have someone offer above the requested rent. To be clear, I did not set this up to be a bidding war for a lease. I simply took what a generous rent for this unit would be, and asked for that amount. I was still given a little more.
Why am I mentioning this? Well, with prices down and rents up, it may be a good time to buy an investment property. Maybe you are one of those investors who would like to wait for the bottom, but I will tell you that the bottom is never quit realized until you are already back on the upswing. And I suspect the upswing will be quick when it comes.
There are some drawbacks to the current idea of buying an investment property. The City of Toronto is contemplating a restriction to rent increases between tenants. I think this decision will lead to some landlords exiting the market over time. I don’t think they will actually do it. They may be tempted but the impact would be huge. If the City of Toronto wants to keep rents reasonable, they should encourage people to build more rental units. They should give tax break to companies to build affordable housing. Instead, the are increasing their development fees to one of the highest in North America.
Are investment properties the only properties to buy right now? Well, that depends. I think it’s a good time to buy period. Prices are down. That is a rare event in this city. And some of the best deals come at a time of uncertainty. The conundrum becomes this: If you wait too long, you may miss out on the bargain deals. If you buy too soon, you may miss out on prices coming down further. And really, I’m not sure if there is a right or wrong approach. I will say this: You won’t know it’s the bottom of the Toronto real estate market until it has already happened. I will also say that I have seen more people miss the boat by waiting too long to see prices rise quickly . I saw it around 2008 and in 2017. If you are buying a property that you don’t want to flip in the next few years, then I say it’s a good time to buy. In ten years, this will seem like buyer heaven to the buyers of 2032. The problem of low inventory has not gone anywhere. There is still a complete lack of planning to build more housing in this region, even when Canada ranks the worst of the G7 countries in preparedness to build more housing for its population. Once the interest rates settle down, the buyers will pounce, and the upswing will be quick.