It is no secret that over the last 3-4 months we have seen a considerable shift in the current state of the GTA real estate market. The winter/spring of 2017 may someday be seen as one of the “hottest” markets Toronto has ever experienced – that is until the months of May/June rolled around.
Leading up to May 2017 the GTA was seeing 20-30% year-over-year appreciation of residential property. Fast-forward to August 2017 where the year-over-year property appreciation has slowed to approx. 5-7%. Why did this happen? The short answer can be summed up by examining 4 closely interrelated market variables:
Natural Buyer “Push-Back”
For years buyers have been dealing with the increasing costs associated with home ownership. However, by 2016 and early 2017, home values skyrocketed to the point where many buyers could no longer afford (or want to afford) purchasing a property. By May 2017 we saw a natural regression in buyer behaviour; many buyers decided they no longer wanted to compete for property and pay astronomical prices for a modest home. This lead to many buyers deciding to wait and not purchase a property.
Time Of Year
Real estate in the GTA is fairly cyclical. Peaks and valleys rule the day in real estate. Peak time begins in the spring and fall, and valleys occur in the summer and early-mid winter. With buyers already beginning to sit back, we now also started to enter a slower time of year – i.e. summer. This of course would exaggerate the effects of buyers not entering the market.
Ontario Government Policy Changes
The slowdown of the GTA real estate market has been largely thought to be a result of the Ontario policy changes that were made in late spring. There were a number of changes made, but the foreign buyer tax received the most publicity (similar to what was implemented in B.C). The changes were intended to “cool” off the market, however, one could argue that the impact is primarily psychological in nature.
The Psychology Of Real Estate
The impact of human psychology is probably the biggest driver of market outcomes. Buyer perception will ultimately effect supply and demand, and therefore has a substantial impact. In the case of the recent GTA market shift, perception has likely been the largest influencer on the current downturn. Buyers are currently in a “wait and see” holding pattern and sellers are still trying to sell because there’s a belief that the market may continue to spin downward. Therefore, the market becomes a living self-fulfilling prophecy.
Some ask about the impact of the mortgage rate increase. Given it is such a small increase, we don’t believe this to be a major market factor at this time.
When looking back at the four variables, it is clear that the GTA market didn’t shift because of one thing or another, but a result of a convergence of multiple events that all influenced an outcome.
What’s next for the GTA real estate market? Anyone who tells you they know exactly what will happens is probably someone you should avoid. Truth be told we don’t really know what will happen. There’s some indicators that the current downturn will be short-lived, which is also the prediction of the Canadian Mortgage and Housing Corporation (CMHC).
In our opinion, we are expecting a small uptick in pricing this fall season, followed by a plateau leading into winter. From there we believe that the market will adjust and continue upwards again by late winter and into the spring season. The long-term outlook for the GTA will likely see home values continue to rise, albeit at a more modest pace. Toronto is the 4th largest North American city and demand is high – basic economics will rule the day in the long-term.
Written By: Dustin Graham
August 14, 2017
The Graham Partners are full-service experts who strive to fulfill the entire spectrum of their clientele needs. Their uncompromising professionalism has yielded a rapid rise to success and impressive results, both for their clients and their business.
Specializing in Milton, Oakville, Burlington, Mississauga and surrounding real estate markets, The Graham Partners are uniquely positioned to assist their clients and customers in the sale and acquisition of residential property.
Print or download: State of The Market – Aug 14 2017