Yesterday the Toronto Regional Real Estate Board conducted its annual market outlook meeting. Right away I want to share two figures they’ve forecasted — and I’m going to explain to you why 2020 could be a record breaking year for real estate.
The board’s forecast for 2020’s average sale price is $900,000. This is significant because it is above the 2016 average sales price of $822,572, and almost 10% above 2019’s average price of $819,319. This is significant for two reasons. Firstly, if you bought during the ‘peak’ of 2016/2017, you’re finally seeing the average price return to that high but there are a few things this time around that might make the price growth more sustainable. And secondly, if we do it the $900k mark this year, it’ll represent a rate of growth that coincides with the most active years of real estate sales in the past decade (not to mention a near double digit price growth… remember last time that happened?).
The second figure I want to share is the number of sales. TRREB forecasts 97,000 sales in 2020. While this is lower than 2016’s 113,040 sales, and even 2015 when 101,213 transactions took place, it is 10.45% higher than 2019’s sales. The last time we saw double digit sales increase was from 2015 to 2016, and just recently from 2018 to 2019. I feel they’ve forecasted conservatively, and we may actually see a higher number of sales this year, so…
Should We Fear a Market Collapse… Again?
For those fearing another market cooling like what we saw after extremely low inventory and intense price increases in late 2016 to early 2017, relax. Unless some worldwide catastrophic event happens, this round of growth looks to be much more sustainable. And there are many reasons for it.
Buyers are still entering multiple offer situations similar to what was experienced in 2016 to 2017. After all, with a low number of houses for sale both seasonally and on a year-over-year basis, it’s not a surprise that buyers would encounter more than one competing offer when buying a home. What’s different is that the competing offers this year are not firm, take-it-or-leave it offers as we’ve seen in the past. Many offers, including the ones who are ‘winning’ the bidding war, are coming in with conditions… on financing… inspection…
This doesn’t mean we won’t see an upbeat frenzy as the next few weeks leading into the spring market unfold. And hot properties will certainly see confident buyers going in without conditions (a risky and dangerous thing to do). But in 2016/2017, going in firm was a must in order to secure a property that had 40+ offers. Today… you may get a property without going in firm.
Talk About Confidence
After the introduction of the mortgage stress test, and the introduction of the foreign buyers tax, buyers in generally seemed to have all-at-once put on the brakes on home buying and decide to sit on the sidelines, embracing a ‘let’s wait and see what happens’ approach. Since the bottom of sales activity in 2017, we’ve seen buyers regain their home buying appetite in a sustainable fashion.
Needless to say they’ve left the sidelines and are now crowding the market again, voraciously consuming the inventory of homes available for sale. The result? A massive decline in inventory (homes available for sale), a rapid reduction in months-of-inventory (a key metric to determine the state of the real estate market), and an uptick in price.
Buyers who have waited to see what would happen to the market are now in the market buying homes. They’ve adjusted their expectations, realized real estate prices aren’t going down any further, and that they’d miss out on opportunities if they didn’t take action.
Buyers Are Solid… As In They’ve Got Money
An Ipsos survey presented during the market outlook meeting showed that the majority of homebuyers are seeking conventional mortgages, and have down payments anywhere from 25% to 30% of the purchase price of the home. This actually sounds shocking, considering how high home prices have risen over the past decade. And though the sources of down payment vary from savings to gifts from family and friends, this figure reveals that buyers coming into the market today are more established, have a solid financial foundation, and can likely stomach rate increases based on their financial position. In fact, 23% of homebuyers in 2019 didn’t even need a mortgage.
Homeowners Love Their Home — And Won’t Sell It
On the other end of the spectrum, we’re seeing few home sellers enter the market for one very simple reason. Homeowners love their home, and they want to stay. So while established, confident buyers are buying up the homes currently on the market, the inventory of homes isn’t increasing relative to the demand of buyers because homeowners want to stay put.
So think about it — as buyers consume a limited number of homes available on the market, fewer listings are coming out. What happens? The number of sales to new listings (SNLR) rises, inventory declines, and prices go up. It’s a bonus that someone who loves their home so much and doesn’t want to sell it also sees their net worth increase as homes on their street sell for higher and higher figures. What could possibly convince them to sell now…?
Buying a New House?
With the increasing prices of resale homes, many buyers are considering new homes instead. Part of the reason is availability. New home sales increased 47% in 2019 versus 2018 according to Altus Group. Another reason is affordability. As resale home prices soar, buyers are starting to seek alternatives. One of those alternatives is new condos. The price gap between new condos and new single detached family homes are narrowing as a result of the demand for new condos and their relatively lower price point. Given the option of buying a resale home, a new single family detached, or a new condo, many buyers are opting for new condos. This demand pushes up its price points but still make it the affordable option for many entering the market.
By the Way… Here’s What Happened in January
I started this article with a forecast for 2020, and based on the Toronto Regional Real Estate Board‘s positive and upbeat outlook for the market this year, the forecasts may essentially become a self fulfilling prophecy. Seeing market activity pick up will certainly motivate buyers to enter the market, and also cause motivated sellers to contribute by listing their properties for sale.
If January 2020 is any indication to how the rest of the year will be, let’s have a look at what happened and figure out how it is significant in the big picture of things. Sales saw a double digit growth — up 15.4% when comparing January 2020 with January 2019. A total of 4,581 sales were recorded last month.
The number of new listings (houses introduced into the market for sale) dropped a whopping 17.1%, and the number of active listings (homes currently listed for sale) fell 35%.
Meanwhile, we’re seeing double digit price growth — price is up 12.3% to $839,363. And properties are selling a lot faster — overall 37 days in January 2020 versus 46 days in January 2019.
The Significance in These Numbers
When looking at data, we have to understand why what happened this past January is significant. Seasonally, the number of listings introduced into the market, and listings available for sale in January are low. So is the average price of homes that sell. And it certainly takes longer to sell homes in the middle of winter than in the spring or summer.
But when we do an apples to apples comparison by looking at January 2020 and comparing it to previous years, we’re seeing a decline of inventory in spite of already low seasonal inventory, and contributing further to that is the fact that homeowners just aren’t listing their home.
As the year unfolds, if we see this pattern continue, we may very well see a return to peak sales, low inventory, and a surge in average price over the next few weeks.
What You Should Do
If you bought in 2016/2017… at the so called ‘peak’ — don’t fret. You’re going to see home prices reach AT LEAST that level again this year, but now it’s going to be a sustainable growth. Buyers have returned with much more confidence and armed with solid financial backing and are embracing the reality of the market.
If you bought at the dip in 2017 and are holding to your property until now, you’ve seen equity buildup and perhaps it’s time to explore buying investment property. If you’re financially solid and can afford a big downpayment (or perhaps even paying for your investment property outright), it’s time to start looking at where the next wave of growth is within Ontario and invest to build real estate wealth.
If you’re thinking of selling this year, you won’t be disappointed. Inventory is at low levels and prices are moving up. The biggest question will be — when should you list your property for sale?
And if you’re still sitting on the sidelines and haven’t bought anything… again, unless something catastrophic happens, you’re going to be missing out on a lot of opportunities if you don’t enter the market now. Prices are going up. Competition is increasing. And buyers are generally bullish about real estate.
Make the Right Move for You
Pause. Reflect. Think about what you want to achieve with your real estate goals this year. And figure out the right move for you. It may not make sense to buy a detached home in Toronto, and you don’t want to move into a condo… so perhaps it’s time to look at booming areas such as Hamilton, Niagara Falls, Barrie, and Ottawa.
You’ve built up massive equity as prices are continuing to rise. So perhaps now is the time to cash out, especially if you’re heading into retirement, and then re-invest your capital into a home and an investment property so you can earn cash flow.
Or maybe you’re still not sure about what you want to do, or where you want to live. If you own a house and you need the money, sell it and rent for a while. Or if you’re planning to buy but not quite ready — don’t want much longer, but keep on saving for a significant downpayment and enter the market once you’re confident about where you want to be.
Ultimately, neither the market nor the stats should tell you what to do. Let your needs, goals and aspirations help you decide what your next move is going to be. Just be confident knowing that 2020 will be a great year for real estate no matter what you decide to do.