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rebeccahpedersen · 6 years ago

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Top-Ten Burning Questions For The 2019 Real Estate Market

TorontoRealtyBlog

Just as my “year-end” blog posts are thematic, ie. the “Top Five Blog Posts” and the shortly-thereafter, “Top Five Real Estate Stories,” I usually feature some sort of early-2019 themed blogs as well.

Either predictions, questions, stories, or themes, I feel the best way to jump into the new year, of real estate blogging, is to offer up some discussion points…

…that we can all disagree on!

Kidding! Just kidding.

It’s been two weeks since we’ve all been in the same (virtual) room. I missed you guys!

Raise your hand if you had too much time with family over the break. Anyone? Anybody care to admit it?

I actually felt cheated this holiday season, since I didn’t spend as much time with family as I thought I would. My daughter was very sick after Christmas, with a fever that lasted for days, so we had to cut short our family-bonanza and stay home to care for her. If I ever watch another episode of “Paw Patrol,” it will be too soon. Seriously. How about five hours per day of that goddam show, in attempts to keep my child’s delirium at bay!? I can’t stand the characters anymore. That kid, Alex? Yeah, he drives me nuts. His entire existence is based upon making mistakes that the Paw Patrol has to clean up. And Mr. Porter? There’s something off about that guy. I wouldn’t trust him.

Post New Year’s, however, things were better. And what child doesn’t love opening Christmas presents one full week after Christmas, right? That’s how sick she was – she refused to open presents! So was she ever a happy camper on New Year’s day.

This was the first year we went out and cut down our own tree, which is something I might do every year, forever, or, something I will never do again. This tree basically dried up by mid-December, and by Christmas, the needles would literally fall off with a medium-sized exhale from your mouth. Our fingers had the touch of death, it was actually somewhat fascinating – seeing every last pine needle fall off a branch, just with a gentle touch.

This might be overkill, but I can’t resist. Plus, I don’t think words do this tree justice:

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My wife hates taking the tree down every year; if it were up to her, we’d still have it up in February. But this year, with the pine-needle-extravaganza combined with her debilitating O.C.D., she was standing at the door with a saw and a garbage bag by January 1st. Our tree is sitting on the curb as we speak, and I actually saw a couple of passer-byers stop, point, giggle, and then laugh away. Yes, our tree is nothing but brown branches, without a green needle in sight.

I went 16 days without working out, I ate more pizza and Swiss Chalet than I care to mention, I was in bed on New Year’s Eve at 11:40pm (I actually forgot about the whole ‘midnight’ thing), and I spent way too much money on 1950’s hockey cards.

So those are my holiday stories, folks. Perhaps we could add the one night that I got tipsy and watched Home Alone, laughing like I was 5-years-old, and reciting every single line from memory, and I think the holiday recap is complete.

Now here we are with a new day, a new dawn, and a new……….real estate market.

Damn. That just doesn’t have the same “ring” to it as the Michael Buble song.

To start 2018 here on Toronto Realty Blog, I wrote “Predictions For The 2018 Toronto Real Estate Market.” I think that in attempts to avoid predictability, I should probably switch up the theme, so this year I’m going to look at “Ten Burning Questions.”

However, I would be remiss if I didn’t look back at my 2018 predictions, not only to remind readers what some of the hot topics were coming into the year, but also to look at how right, or how wrong, I was.

So for those of you that were hoping to see those “burning questions” today, I’m sorry. I’m a tease.

We’re going to start this 3-part blog series by looking back at my 2018 predictions, just to put the market in perspective.

There’s method to the madness, trust me.

Perhaps Bruce Lee’s “Empty your cup” analogy isn’t 100% accurate here, but I can’t help but feel like we can’t look ahead to 2019 before first emptying what’s left in the tank of 2018.

Plus, it will give some of you an opportunity to say “I told you so,” and who doesn’t love that?

I made five predictions coming into 2018, so here they are, and here’s how they turned out…

2018 Prediction #1: The average home price will increase in Toronto, in 2018.

This was wrong.

Dead wrong.

With a “peak” average home price in April of 2017 around $920,000, the November price was down to $761,757 at the time I wrote this blog, and the year-end price was looking like it would come in around $820,000.

My thinking was simple: the market had crapped out in May, June, July, and August, before making a modest comeback in the Fall. Average out the good months with the bad months, and the $820,000’ish average home price was incredibly depressed.

I surmised that we’d see a return to $820,000’ish numbers, which still represented a dramatic drop from that March-April peak of $916,000 and $920,000 and change.

I was wrong.

As I wrote in a December blog post, 2018 would be the first year since 1996 that the average home price declined, year-over-year, which was yet another reason why I predicted a 2018 increase. I suppose the “stick with the trend” mentality can only get you so far!

So how much did the average home price in Toronto actually decline in 2018?

The average home price in Toronto in 2017 was $822,572.

As of this writing, the December stats (and thus year-end stats) were just released by TREB. Talk about cutting it close!

My late-December blog post guesstimated a 2018 final average sale price of $790,000, based on a weighted average of the preceding 11 months. The average home price for 2018 actually came in at $787,300, so I wasn’t that far off.

That’s a 4.29% decline, year-over-year, in the Toronto average home price.

Just as a refresher, here’s the average home price movement since the last time we saw a decrease, and I’ve added in 2018:

So, once again, I was wrong.

But what about the Toronto-416 home price? Do I get a reprieve by looking at the “central core,” which I would probably argue can, and will, survive market forces in the short, medium, and long-term?

This overlaps with my second prediction, so at the risk of being repetitive, let me come back to this at the end of Prediction #2.

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2018 Prediction #2: The freehold market will outpace the condo market.

Wrong again.

But I would love to meet the person who predicted the opposite coming into last year.

Generally-speaking, houses are more popular than condos, agree? That’s simplistic, but let’s say that if most people had a choice, they would live in a house over a condo, and it’s price that’s stopping them from doing so. It’s also supply.

So coming into 2018, with the same “they’re not building any more houses in Toronto; it’s just cranes in the sky” mentality, I can’t look back and say I should have seen the condo appreciation coming.

So how did the housing market do in 2017 versus 2018?

Well, because the Toronto Real Estate Board refuses to provide us with the appropriate data points (let’s just say that on December 31st, they were ringing in 2006…), I took the time to plot each and every month’s sales and sale prices for the four major housing types, in the past 24 months: condo, detached, semi-detached, and townhouse. This is the only way to get true, accurate numbers.

You don’t need the charts to understand the conclusions, but I spent so much damn time on this, I may as well share it!

Here you can see the sale price for each housing type, in each month, and the corresponding number of sales. Why is the number of sales important? Because we need a weighted-average to get an accurate yearly number. If there were 2,000 sales in May, and only 500 sales in December, we can’t simply average the two corresponding months’ sale prices. We need a weighted-average based on sales.

Then I’ve taken a further weighted average of all the all the sale types, and come up with a freehold average for detached, semi-detached, and townhouse, which we can see there is $1,194,327.

That is the true average freehold sale price for 2017. And gosh-darnit, I would love if TREB would make this available, but I won’t hold my breath…

So three things to look at here:

1) How wrong was I with respect to my 2018 prediction that the freehold market would outpace the condo market? 2) While we’re at it, and while we have this data set, how did the Toronto (416) market compare to the overall “Toronto” market that we’re accustomed to hearing about? 3) In Toronto-416, how does the year-over-year average sale price look for the four individual home types (ie. freehold, semi-detached, townhouse, condo)?

First thing’s first, here is the 2018 data:

Well, I think the bolded numbers pretty much sum it up!

Keeping in mind that we’re looking at the 416 and not the overall Toronto market with respect to the “freehold versus condo” comparison, the data speaks volumes.

The 2018 freehold price of $1,132,633 trails the 2017 freehold price of $1,194,327 by 5.17%.

And the 2018 condo price of $592,922, as you can see, is well ahead of that $545,635 price that the market experienced in 2017.

The freehold market went down by 5.2%.

The condo market went up by 8.7%.

I was wrong, as I said before. But with that out of the way, what conclusions can we draw from all of this, and/or what questions should be asked?

I suppose we’d want know, first and foremost, why the 416-Toronto condo market was so resilient!

Were condos under-valued coming into 2017? And did they remain under-valued coming into 2018?

Does this mean we should expect condos to cool in 2019? By association, should we expect the freehold market to outpace the condo market in 2019?

All good questions, and all with answers that will vary dramatically depending on your interpretation for the last 24 month’s market activity, and your prognostications.

As for the second question asked above – how the Toronto-416 market compared to the overall Toronto market, there’s a huge difference, but I think this could have been easily predicted.

Some of you might doubt the conclusions, since the rhetoric has been nothing but doom-and-gloom all year, but this is a stat that TREB does provide, so go to the Market Watch and see for yourself.

The average sale price in Toronto-GTA is down 4.3%; that’s $787,300 up from $822,587.

The average sale price in Toronto-416 is actually up by 0.2%; that’s $835,422, up from $834,138.

As for the third question, here is where things get interesting.

These stats are from my spreadsheets above, since TREB does not provide a breakdown of the four property types, year-to-date, in the 416:

Freehold – down 7.0%

Semi-Detached – up 1.0%

Townhouse – up 2.5%

Condo – up 8.7%

Basically we’re looking at a market that has seen a 0.2% appreciation overall, where the decrease in average freehold price has been offset by the increase in average condo price, and with the smaller sample-sizes of semi-detached and townhouse helping to round out the final number.

All in all, it was a great year for condos, a down year for detached, and a flat year for the 416 on the whole.

I chalk up part of the reason for the 7% decline in 416-detached homes to far fewer “luxury” homes trading hands, which upsets the balance, but admittedly the overall detached market is down. Now to be fair, it really depends on price once again. If a $1,000,000 semi-detached is up 1% on average, I’m willing to bet the $1,150,000 detached house next door is also up 1% on average as well. I think the $2.8M detached houses at Avenue & Lawrence are down, no question. But we always have to be careful not to paint a whole subset of housing with the same brush.

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The rest of my predictions were less interesting, and in the interest of time, I’ll summarize.

3) The “stress-test” will have a short-term effect, but no medium-term effect.

The stress-test definitely did have a short-term effect. I had clients in January that had to scale back their target purchase prices, but only two.

I heard from other agents working with buyers that the situation was a bit more prevalent, but as I said last year, most buyers don’t buy to their max pre-approval, so I didn’t think the decrease in mortgage amount would actually lead to a decrease in purchase amount.

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4) Banks will change their lending criteria.

I was right about this, but for the wrong reason.

Toward the end of 2018, I saw banks tightening up their criteria in a big way.

And in one specific case, for the sale of a condominium listing, I was asked for a copy of the Status Certificate – are you ready for this? From the bank!

That’s right, the bank wanted a copy of the Status, which is something I have never seen before. They likely wanted to ensure that there were no maintenance fee increases scheduled, or no special assessments for the condo corporation. Perhaps it was a buyer who was right up against the ceiling.

Coming into 2018, I figured banks would change their lending criteria to allow them to lend more.

I always say, “Banks are in the business of loaning money, and they’ll find a way to do so.” If the government enacts measures to curb or restrict lending, the banks will find a way around it. Coming in to 2018, I started to see some banks get creative, but that was short-lived.

Alternative lenders and B-lenders picked up a lot of the slack in 2018.

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5) The spring market will provide the reverse chronology of 2017.

I nailed this one, as the following chart, updated from my 2018 blog, will show:

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6) The government is finished meddling in the real estate market.

This was true, for the most part.

Doug Ford did tinker with rent control in late-2018, but we didn’t see anything this past year like we saw in 2017 with the launch of the “Fair Housing Plan,” and there were no major government initiatives enacted this year. You might attribute that to Prediction #7…

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7) Kathleen Wynne will Wynne another Premiership, and that’s scary for home-owners, and home-buyers.

Wrong about this one too.

I suppose I underestimated the zeal of voters, who I thought would rather be guided by the devil they know, than the devil they don’t.

But in the end, we decided we’d rather have a 1980’s drug kingpin lead the province than a person who wants to tax us to death.

Time will tell if we made the right call.

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And on that wonderful note, I adjourn until Wednesday…

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