If you believe the media, the sky is falling. Trust me: it’s not.
Sure, there’s a slow down happening. That was inevitable! The market has been too hot to handle for a long time now. It was a matter of time for a small correction but here’s the thing: despite that, the market in parts of Toronto is still hot, so it’s not time to take a break if you’re trying to find your perfect home in the city.
Here are a few questions I’ve been getting lately. If you have any more, ask them! Yours might be featured in a future post!
Are the days of bidding wars and bully offers over?
In a word: no. While February’s reported 12.4% drop in home prices in the GTA, over February 2017, seems like a huge drop, this averaged decrease isn’t a true reflection of the entire area.
Some suburban areas, like York region, are seeing less competition for homes, with more and more inventory sticking around for longer than a few days. Overall sales have dropped, compared to February 2017, by about 35%. That said, in the core of Toronto, it’s still common to see homes going for over asking price, after a bidding war.
People want single family homes and condos in the city, where they can access all the amenities they need and skip a long commute; these properties are still harder to get. Offers on a single property numbering up to 20 are still relatively common and don’t show any signs of weakening. It’s a question of supply and demand.
The struggle for those living outside of the core is that they’ve seen their home values drop, on average, from $875K to just over $767K. If you’re counting on your home value as an investment, but you’re not living in a hot neighbourhood, you need to adjust your expectations. Too many sellers in those areas are overpricing their homes and buyers know it, so they’re waiting and homes are sitting unsold for longer.
Why is there a slow down happening in the overall GTA real estate market?
The new, tighter mortgage rules have a lot to do with the slowdown. The new rules, intended to make sure that people aren’t buying more than they can actually spend when interest rates go up, include a financial stress test for would be buyers. When a financial institution is looking at a mortgage application, they use an interest rate that is based on the Bank of Canada’s five year benchmark rate plus two percentage points.
Say what? Let’s put it this way: in the past, you wanted a mortgage and the rate was 3.3%, you would have been evaluated based on the mortgage amount request at 3.3%. With the new rules, you will be evaluated as to whether you can handle the mortgage, with all your other financial obligations, if the rate was 5.3%. That’s a big difference and some people won’t qualify. The test application is also true for people who want to refinance their mortgages, though not if they are renewing with the same lender. That said, if you’re renewing your mortgage and you want to shop around to different lenders, you would undergo the stress test.
Even with a downpayment of 20% or more, prospective buyers will have to face the stress test. In the past, that level of downpayment was all it took to get an uninsured mortgage. With the new rules in place, it’s estimated that some 10% of previously approved mortgages would not pass the current test. It basically means that, as a buyer, you might have to look at a smaller mortgage. The problem with that in parts of Toronto is that prices aren’t dropping significantly enough to make it possible to get in at a lower amount.
The Fair Housing Policy also played a role in the drop in the market, with the addition of a 15% foreign buyer tax, among other measures. The ‘Non-Resident Speculation Tax’ is meant to limit speculation and investment buying, which was pushing up pricing and crowding a lot of residents out of the market.
Are there still ‘tough markets’ to crack in the GTA?
Of course! As long as supply and demand is what it is, there will always be markets that do well. Maybe not as well as in previous years, but they’re not going to go down the drain either.
The downtown Toronto condo market is a good example. While sales have declined since February 2017, the prices have gone up. Families in particular are considering high-rise living, sacrificing space for proximity to family, amenities, jobs and the lifestyle of the urban dweller. Less time in the car, more time together, is a theme I keep hearing over and over again.
The new mortgage rules have also pushed first time buyers to the condo market, rather than single family homes. It’s a great starting point, both from an entry into the market and as an investment.
If you want to know more about what kind of home might be right for you, give me a call. We can figure out what you need, what you want, what you can afford and go from there!