As one of Toronto’s top-producing realtors, it’s amazing I began my real estate career in 1989 just as the Toronto housing bubble burst. Lucky me, eh? But boy did I learn a lot during the early years of my career. The magnitude of that housing market collapse was so substantial, it wasn’t until 1996 that the real estate market regained momentum, demand began to outpace supply and property values began to increase. Real estate has followed a consistent upward trajectory ever since, except for the latter part of 2008 when the sub prime mortgage crisis paralyzed the global economy. With our real estate market booming 14 of the past 15 years, it’s easy to assume Toronto’s housing climate will consistently increase in value. But for someone who experienced the five years prior do a major crash ‘n burn, I have to confess I’m wary.
“Is Toronto’s real estate market ‘too good to be true’?”
What Goes Up May Come Down
As a diligent realtor, I think it imperative I discuss both the risks and opportunities of a potential market downturn with my clients, while recommending they speak to their lending institutions about the ramifications. I also take special care counselling my ‘cash poor, income rich’ clients as they’re most vulnerable, if the market falls. If market values drop, first time buyers with small down payments run the risk of seeing their housing investment shift from an asset into a liability, and may not be able to renew their mortgage when it comes due, as many lenders are reluctant to over leverage the property with debt. As a result, through no fault of their own, the homeowners may end up being penniless and homeless.
While addressing this possibility to my clients is daunting at best, I feel it is better to bring these concerns to buyers in advance of their making a purchase. And if the rest of the real estate world is crashing while Toronto is not, shouldn’t buyers take extra special care to face their worst case reality in case it does? As I wrote in my Spring Summer 2011 forecast (posted in our HomeWatch Newsletter Section), if it hits us (or should this optimist pessimistically say ‘when?’), it will start with the condominium market.
There are an awful lot of condominiums being constructed which portends an over-supply. As there still exists a gap between value and declining rental income that they generate, the moment the economy turns bleak and more investors need to liquidate we could experience a massive fallout in the condo market; this is where I predict we will see, if any, cracks in the veneer of our robust market. I have less concern over the downtown freehold housing market. I believe that the demand for houses is going to sustain itself for a long time.
Time to Climb the Property Ladder?
For homeowners with sufficient equity in their property, the best time to move up the property ladder is when prices are declining. For the financially prudent, upgrading your dwelling in a declining market can save money. For the shrewd minded, there’s also the potential to realize a bigger discount when it comes to expensive property. Compound a smaller pool of buyers (because of the price point), with a market downturn, and you may be able to negotiate a substantial discount on a luxury residence distress sale.
When asked about the future, anyone who has been in their business long enough to see a market cycle up and down should never be afraid to say “I don’t know.” While I fundamentally believe Toronto has all the right ingredients to sustain itself in a positive, profitable manner (we’re a well-educated professional hard-working progressive liberated forward-thinking city with positive immigration), I have this niggly feeling that it will be another country’s political economy that will take us down. These are big betting days. Wouldn’t you agree?
At urbaneer.com, we invest our time and energy focusing on market trends and conditions to best serve and guide our clients. With a comprehensive understanding of Toronto’s 42 village neighbourhoods, and over twenty-one years of real estate experience, we pride ourselves on being one of the city’s more personable real estate boutique services. Ranking in the Top Ten of Bosley Real Estate’s 200+ sales associates, we are your friendly, effective realtors!
Contact Steven Fudge, Sales Representative for Bosley Real Estate Broker, Brokerage at 1-416-322-8000