Welcome to my blog on housing, culture, and design! I’m Steve Fudge and I’m celebrating my 31st year as a realtor and property consultant in Toronto, Ontario, Canada.

It’s time for this month’s installment of Dear Urbaneer, where I answer real estate questions put to me by my loyal readers. In this edition, a dwell hunter is uncertain about buying a home in our current economic climate and is wondering if others are in the same boat.

Dear Urbaneer:

I’m having a bit of a dilemma.

Buying a house is my goal. However, I keep reading all these headlines about inflation being out of control, Canadians having sky-high household debt, and people with variable-rate mortgages (and even fixed mortgages that will be coming up for renewal over the next 24 months)  finding themselves spread financially thin. It makes me a bit nervous!

I’m wondering whether there are a lot of buyers like me who are taking a pause from the market to reassess. And for those who are buying, what are their motivations and goals? I feel like if I could understand what others are going through, I might be able to reconcile my own reservations and achieve a better comfort level.

Signed, Am I The Only One?

Here is my reply:

Dear Only:

Allow me to tip my hat, because you’ve touched on the very questions a lot of people are asking as they try to map their future forward. It appears we live in a time where uncertainty is becoming both a constant and more precarious. I feel like I’ve gone to the circus and unwittingly entered the Twilight Zone to find the clowns juggling a climate crisis, a pandemic, a war, inflation, and high-interest rates. And I’m just perched on the edge of my seat waiting for one of them to lose their shit. Seriously?

The upside is if our current circumstances haven’t deterred you from taking your eye off the shelter prize, it demonstrates how important your goal of homeownership is. To keep your motivation constant, consider framing it within the context of Maslow’s Hierarchy Of Needs which, as a model for understanding the motivations for human behaviour, begins with meeting our physiological needs for food and shelter, followed by safety & security, love and belonging, self-esteem, and finally self-actualization (perhaps otherwise known as financial freedom, for some). In other words, if you attach your motivation for homeownership both out of desire and out of necessity, you’ve kind of got all the bases covered, right?

For over two decades – until last Spring when interest rates began their ascent – the Toronto real estate market has been on an upward trajectory. In fact, bidding wars have been a regular occurrence since the early 2000s (except during the Summer of 2022). This means that almost every person who has bought title to a piece of Toronto terra firma during that time period pretty much started with a goal. And they saw it through. So keep that in mind. You are not in lone company.

Over the years when a Buyer asks me how much they will have to pay to purchase the property they want, I often reply that the cost will be in the range of “One more dollar than they have”. It always solicits a bemused response. However, weeks later after the Buyer has become accustomed to the frequency and intensity of bidding wars, they’ll acknowledge exactly how true this statement is.  I think it’s human nature for people to crest to the very top of their budget to get the property they favour most. What does this mean? The quest to buy a home not only requires you to be extremely goal-oriented,  but once you’ve set that goal you need the tenacity and discipline to persevere with prudence to achieve it, no matter how long that takes. Sure, it may mean a lot of brown bag lunches with a side of water for the foreseeable future, but if you play your cards right, it’s worth it.

I think a lot of Buyers believe that the moment they finally cross the threshold into homeownership, it’s all clear smooth sailing from there. It’s not. You have to replace tenacity with temerity and unconditionally accept your decision to purchase a particular pile of depreciating bricks and mortar (that sits on land that continues to increase in value) for the largest sum you’ve ever spent in your life, knowing it will require two to four decades of mortgage serfdom for you, and yours, along with a spreadsheet of never-ending repairs to pay for. Sure you are allowed fleeting moments of Buyer’s remorse, but it is not allowed to add up to an ounce of regret. The moment it does you may be on a slippery slope to breaking even and possibly incurring a loss. Keep this in mind, because buying Toronto real estate is not only about achieving the desired outcome – but being able to live with its opportunities and limitations.

Change, like buying your first home, is never without risk. The question isn’t whether you should take risks, but how much risk you are willing to take to achieve your goal. The focus should also be on how you manage and mitigate the risk. This means it serves you to be risk-aware rather than risk-averse; be comfortable and confident in your decisions; and never bite off more debt than you can chew. 

As they say, knowledge is power, so understanding the mechanics of the market, including what Buyer profiles are actively pursuing property & what Seller profiles are actively listing, will likely create some context by which you can frame against your own circumstance.

This means, dear reader, that in next month’s Dear Urbaneer, I am going to explore the Selling side of our current market conditions. Right now, it’s the lack of listings (and the reasons why) that are contributing to the strangely oscillating real estate dynamic.

We Canadians Drank The Real Estate Kool-Aid

In Canada, homeownership is a priority that persists, no matter the cost. Not only does the real estate mantra say it’s a good long-term investment, but homeownership is also the foundation to anchor, and nurture, our physical, emotional, mental, and spiritual needs. For the vast number of Canadians, purchasing a property is symbolic of being ‘biographically on schedule’. In fact, about two-thirds of Canadian families own their own home which ranks near the top percentile in the world.

Which begs the question: What is at the centre of this undeniable lure toward homeownership?

In my post Why Does Homeownership Remain A Priority For Canadians, Despite The High Costs? I explore the irony of how expensive homeownership really is once you’ve locked down your acquisition cost and how the Canadian government both socially conscripts Canadians from a young age to desire homeownership, and steers the narrative to immigrants that homeownership is the path to fulfilling the ‘Canadian dream’. This doesn’t mean I don’t see the merits of homeownership, in part because I’m a product of this same conscription – and, well, I’m a realtor who earns his living helping people buy and sell houses. But in the shelter industry, I find almost every profession and trade, including lenders, gloss over the real costs associated with their product, as well as the real risks that are possible. It’s particularly painful when a household finds themselves treading financial waters after their small equity stake has evaporated leaving them holding a massive debt that is growing rather than decreasing. 

I’ll address this next month, but there are a whole lot of homeowners who, with the help of their families, purchased property (mostly since 2017) fueled by the Fear Of Missing Out. These folk had small down payments, their parents topped up the down payment to make it 20 percent of the purchase price or more, and they secured enormous mortgages. By and large, these folks made it work when the market was escalating at the pace it was, and lenders invited owners to take advantage of HELOCs solicited without request, allowing these people to float their debt on future resale value. But with the shift in the market, this isn’t anyone’s reality anymore. A lot of people are struggling financially and it’s straining marriages. A lot of these households are internally imploding while their public face is happy-go-lucky. Mark my words, there’s a reckoning coming but for now, people are hanging on trying to make it work.

Would you agree that culturally there is a deeply rooted shame associated with losing one’s home? I write this knowing shame or embarrassment exists and yet I can’t pinpoint where this comes from. In contrast, people are quite open to sharing that they’ve taken a financial hit in the stock market, but losing one’s home seems to be weighted with a whole next level of losing. As I’ve written many times in the past, homeownership is a status market intended to illustrate you’re biographically on schedule, so perhaps losing it to financial mismanagement (and let’s not forget the BofC’s false promise to keep interest rates low) is a much more public type demonstration of failure. For whatever reason, it’s a negative construct that I believe is keeping the real estate house of cards from crashing. Take note.

Here are 7 Buyer Profiles who are purchasing Toronto real estate right now:

1• Former Homeowners Who Became Renters & Experienced Multiple Evictions

Housing first and foremost serves the need for shelter. With rental prices escalating rapidly, we’re helping more purchasers who, for several reasons sold a property and started renting, now deciding to buy because they’ve been evicted from a rental, often multiple times.

This is happening because more property investors are selling their properties because interest rates are much higher than when they initially purchased. Depending on how leveraged an investor is – and if they own multiple properties (which many do) – these higher interest rates are increasing their negative carry (the amount of money the investor has to contribute to serving the debt costs over and above the rent generated) while eroding the value of the property. It’s a double hit that cannot be sustained indefinitely. Eventually, the investor lists the property for sale and, if it’s bought by an end-user looking to occupy the property themselves, the tenant is evicted as a result.

Rather than continuing to ride the roller coaster of uncertainty on the rent/eviction cycle drawn from their experience, this group of Buyers is willing to buy a home in our current fluctuating market because of the stability – and relative control – that accompanies this type of tenure of homeownership.

2• Buyers Who Believe Renting Is Too Expensive

The rental pool in Toronto is absolutely bubbling and the rents are skyrocketing. According to the May release of data from Rentals.ca, rent in Toronto has risen 40 percent since 2021.

There is a serious lack of rental stock in Toronto and demand is expected to keep flowing. Things will likely only get pricier. The Canadian government continues to increase immigration targets to fill in the gaps in the workforce, and while it mandates increasing the supply of housing, there is clearly a lack of new housing starts underway to meet our shelter requirements. After all, it makes sense that immigrants would rent before they buy, so I hold the Canadian government accountable for not matching supply with demand. This will effectively put even more pressure on the rental market.

Furthermore, did you know that 2% of Canada’s population are international students who, through no fault of their own, are contributing to the lack of housing? Why are colleges and universities – that charge international students much higher fees – not obliged to provide student housing?

As the cost of renting becomes prohibitive, those who can jump into the housing market to buy, will. A BlogTO article entitled ‘Graphic Reveals The Single Biggest Problem With Toronto’s Rental Market‘ has a graph that clearly demonstrates the issues with supply and demand. Since the early 1990s, the shelter industry has focused predominantly on condominium development while ignoring other types of tenure. But over the past decade, purpose-built rentals were seeing a comeback because of The Growing Trend Of Financial Landlords In Toronto Real Estate – but then they weren’t when the pandemic sent everyone back to their home countries – and now demand has returned but the supply is still lagging. and here we are in a market where renters may have to become buyers because, paradoxically, the cost of renting is too expensive.

Check out this Blog TO story: ‘It Is Cheaper To Own A Home Than Rent In These Toronto Neighbourhoods’, as well as this MPAMag article – ‘Toronto Rent Rises – Time To Move Towards The Purchase Market?‘ – that succinctly states: “Rising rental costs mean that many Torontonians no longer see the benefits of staying in the rental market”.

TREEB reported that sales of condominiums continue to be subdued, down from pandemic-market highs, but that they expect the trend to reverse because of the relative unaffordability of the rental market: ‘Toronto Condo Sales See Decline In Q1 2023 While Rental Market Remains Tight‘.

As this Toronto Star article discusses ‘GTA Rents Hit Record $3,000, Creating A ‘Very Alarming’ Situation‘, compounding the situation, and putting pressure on the market, is that rents are rising, pushing renters back into smaller units. At the same time, because of higher interest rates, increasing material costs, and rising labour costs, the pace of purpose-built rentals has slowed, which places even more pressure on the supply-demand dynamic.

3• Buyers Who Were Sick Of The Waiting Game (And Took Advantage Of Price Moderation And Mortgage Insurance)

The First-Time Home Buyer Incentive offered by the Government of Canada allows qualified Buyers to put a down payment of as little as 5% of the purchase price providing the purchase price does not exceed $999,999 and the Buyers agree to incur the cost for mortgage loan insurance from CMHC, Genworth, or Canada Guaranty. So when interest rates started increasing, resulting in property prices moderating and then dropping, more housing stock filtered downwards into the ‘under the $1 million mark’. This increased the number of properties available to these high-ratio Buyers, often in locations they couldn’t afford just a few months prior.

For many, this was a dream-come-true. After “watching and waiting”, this Buyer Profile was fed up ‘treading water’ and not feeling grounded, so this moderation in the market was the impetus for action for these Buyers because they could finally get onto the property ladder.

I wrote about these Buyers in this post: High-Ratio Homebuyers Take Advantage Of Price Moderation In Toronto Real Estate. 

In terms of numbers, based on the sales in Toronto’s 35 MLS Districts, here are the number of freehold dwellings that have sold for $999,999 or less (excluding vacant lots, of course) over the past 3 years.

• In 2020 – 1753 houses sold under $999,999 out of a total of 7961 sales (22%)
• In 2021 – 354 houses sold under $999.999 out of 5943 sales (6%)
• In 2022 – 678 houses sold under $999,999 out of a total of 4373 sales (15.5%)
• From January 1st to May 25th, 2023 – 1554 houses have sold for under $999,999 out of a total of 3720 sales (41.2%). 

This is good news for people who have less than 20 percent down and who are comfortable with the debt load.

4• Buyers Falling Prey To FOMO

The impact of Buyers pursuing a property purchase fueled by the Fear of Missing Out is vague, but it is a powerful and real by-product of a hot real estate market where supply is short and demand is robust. Psychologically, when people see others, particularly those in their social world, purchasing property they feel compelled to do the same. They feel a sense of urgency because they are afraid they may be missing out on a good opportunity. And with bidding wars common and the elusive chance for homeownership seemingly slipping away, the emotional energy of FOMO takes charge. Do not underestimate the power of psychology when it comes to real estate. Check out my post called The Psychology Of Real Estate, Housing & Home.

While the market has moderated somewhat, bidding wars are still common, particularly for freehold housing in central locations like those surrounding the downtown core. It’s mostly because listings are few. Even though many Buyers retracted from the market, even more Sellers were unwilling to sell their homes for what they perceived to be a “discount’ in comparison with the highs of the market in 2021 and 2022. As a result, the market remained unbalanced.

This particularly became apparent this Spring when, given the seasons to real estate, more Buyers actively started to look and, with the lack of listings, it spurned the return of FOMO. Furthermore, because banks extended the amortization periods for many homeowners at risk of losing their homes, it reduced the number of listings that would otherwise have come for sale. This intentional manipulation by banks effectively has them regulating what is supposed to be a free market. It worries me.

However, – if you saw your foothold onto the market shrinking like the high-ratio Buyers who couldn’t spend over $999,999 these past few years, FOMO would feel real.

5• Buyers With A Boost From The Bank Of Mom & Dad

With the high price of housing and the extended length of time it takes to amass a down payment in pricey Toronto, the Bank of Mom and Dad (which I wrote about in 2011) is an ever-present factor in the real estate market.

The Bank of Mom and Dad is part of the largest transfer of intergenerational wealth in the history of capitalism. What started with the Silent Generation, and is now near-omniscient with Baby Boomers tapping into their own financial portfolios and assets to gift to their children and grandchildren, one thing is clear from the real estate trenches. The Bank of Mom and Dad consider real estate the asset they want the money used for. It is their preferred investment.

Keep in mind the members of the Bank of Mom and Dad were buying their homes when interest rates were much higher -like in the 11% to 13% range in the late 1980s and 1990s, so their frame of reference (and experience) is different from the other Buyer Profiles. The concept of ‘buy when no one else is buying’ has served them well, so with our market in flux they see it as an opportunity to set their heirs up along the same path.

This BNN article ‘Canada’s Homebuyers Need Help From ‘Bank Of Mom And Dad‘ talks about the probability that it’s the Bank of Mom and Dad buyers who are flowing funds into the market and propping it up from further declines.

There isn’t a ton of hard data as to what amounts are being gifted intergenerationally, but certainly from anecdotal experience, as alluded to in the BNN article, in connecting the dots it seems a reasonable assumption that it is these parents and grandparents with deep pockets who are helping to create the momentum for competition around some of the more desirable properties, which is concerning for some observers. The property market, as house prices soar beyond income, is becoming more of a have-and-have-not scenario, with the Bank of Mom and Dad swooping in to widen that chasm.

6• Buyers Transitioning Or Requiring A New Space Due To Necessity 

You may be seeking a new residence out of necessity. For example, you may be a family who has outgrown your current digs or are a multigenerational household with a very specific must-have list who have decided, post-pandemic, it really is time to get under one roof. In many of these instances, what these households require may not be easily available through the rental market.

For example, if you were a large household you would probably require at least 4 bedrooms which is rare to find in the rental market. At this moment, in Toronto’s 35 MLS Districts, there are only 126 four-bed or larger dwellings for rent for under $10,000 a month – at an average rent of $6054 per month often plus utilities (but including property taxes, water, and waste).

Beyond need, purchasing a dwelling can also be seen as a rite of passage through the many different chapters of life. It’s a demonstrable way to begin a fresh start. For example, after a divorce begins a new life which can translate into a new home. Or perhaps a couple has just gone from two to three with the addition of a newborn, and their wishes, wants and needs have evolved as they redefine what they need in a “home”. These kinds of motivations can drive buyers to the market, no matter the conditions.

7. Small-Scale Developers Serving The Executive Class

Although I believe the demand for shelter by end-users – meaning buyers who have the intention and need to occupy all or a portion of the dwelling for themselves or a family member – is the predominant pool actively purchasing property now, the small-scale developer segment of the market who purchase aging housing stock and transform it into new product remain actively engaged in the market.

Although it took from March 2022 to January 2023 for the interest rate shock to wear off, and for Buyers to process and re-tool their shelter wishes, wants, and needs, small-scale developers cautiously kept purchasing the best opportunities to redevelop properties into their highest and best use. After all, not only are they committed to keeping their trades employed and their business growing, but the appetite for modern masterpiece residences by the executive class has not dwindled. In fact, any small-scale developers retracting from this exploding market only create more potential profit for those who carve out their niche in this shelter industry segment.

Back in 2013, I wrote about the impact of renovators and flippers in Why Are So Many Houses Being Renovated? In 2016, I looked at how land value was the driving force of our property market in Exploring Toronto Real Estate Property Values. By 2018 I was showcasing the arrival of  Ten Toronto New Builds That Recently Sold For Between $2M And $10M and in 2019 I was documenting How Toronto Real Estate Is Shifting From ‘Fixer-Upper’ Flips To ‘Tear Down’ New Construction and Trending In Toronto: Single Family Houses Replaced By Boutique Condo Townhomes.

Since then, the demand for new freehold housing in the central core of the city has continued to increase. Properties appealing to renovators, flippers, or second & third-time move-up buyers looking to renovate and occupy as they career-pathed their way up to a Forever Home, are as likely to be purchased by small-scale developers and torn down, rebuilt, or redeveloped to cater to the executive class. This is because the sum small-scale developers are willing to pay for the land is often more than the amount gentrifiers are willing to pay for both the land and the existing dwelling. This should come as no surprise to those familiar with our original housing stock, given much of it is 80 to 150-years-old and approaching obsolescence.

I want to take a moment and call attention to how this is part of a trifecta that fueled our housing boom. If you have a city filled with aging housing stock that is considered inadequate for modern urban living, and it is becoming a progressive liberated multicultural destination appealing to an expanding affluent creative executive class, then you have the ideal conditions for speculation. For over two decades, the buoyancy in our market has created opportunities for easy profits. 

While speculation has abated, small-scale developers – who are sometimes labeled as speculators but are not – continue to pursue the older and obsolete housing stock, making it harder to find a move-in-for-now-&-renovate-later freehold dwelling in a family-friendly neighbourhood in the original City of Toronto. In fact, you’d be hard-pressed to find something suitable for under $1,350,000. Meanwhile, the amount of new product catering to the executive class is growing. For example, in 2022 I shared 10 Precedent-Setting Sales In Toronto’s Oakwood Village Neighbourhood that sold between $2,000,000 & $3,000,000 & more recently 7 New Build Sales In Toronto’s East York Neighbourhood This Past Year which garnered sums for as much as $2,500,000. Because of this, we’ll continue to see a perpetual shortage of ‘affordable’ freehold dwellings for the professional class in the central core. On that note, this could be your rabbit-hole Toronto real estate read –> As-Of-Right Multiplexes Create Missing Middle Options For Toronto Real Estate

Are you one of the 7 Buyer Profiles motivated to buy in our current market conditions?  Are you seeking a real estate team who can help you achieve your objectives? With decades of experience navigating Toronto’s real estate market, the Urbaneer Team is here to help!

Oooh look! Related reads!

Dear Urbaneer: Should I Buy Property In A Climate Of Rising Interest Rates?

Maslow’s Hierarchy Of Needs – For Buyers

Why Does Homeownership Remain A Priority For Canadians, Despite The High Costs?

High-Ratio Homebuyers Take Advantage Of Price Moderation In Toronto Real Estate

The Bank of Mom and Dad

Rising Interest Rates And The Toronto Real Estate Market

Dear Urbaneer: We’ve Moved Into Our New Home. Now What?

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Serving first and second-time Buyers, relocations, renovators, and those building their long-term property portfolios, our mandate is to help clients choose the property which will realize the highest future return on their investment while ensuring the property best serves their practical needs and their dream of “Home” during their ownership.

Are you considering selling? We welcome providing you with a comprehensive assessment free of charge, including determining your Buyer profile, ways to optimize your return on investment, and tailoring the listing process to suit your circumstance. Check out How Urbaneer’s Custom Marketing Program Sold This Handsome Edwardian Residence In East York to learn more about what we do!

Consider letting Urbaneer guide you through your Buying or Selling process, without pressure, or hassle.

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Thanks for reading!

-The Urbaneer Team

Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage – (416) 322-800

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