Are you debating whether you should sell in 2023 or if you should wait? It’s a difficult decision. It’s both a financial and a personal one, with many factors to consider. The scary thing is that the average home price in the Greater Toronto Area has dropped almost 20% since the peak in February 2022. It’s easy to have recency bias, but when you’re making a decision on your largest asset, you need to make an informed decision. So you should consider where the market is currently and more importantly, where the market is heading.
Here’s a snapshot of the price changes in the different housing types:
| Peak in 2022 | Nov 2022 | Drop in $ | |
| Detached | $1,797,203 (Feb) | $1,390,162 | $407,041 |
| Semi-detached | $1,358,415 (Feb) | $1,039,200 | $319,215 |
| Townhouse | $1,254,460 (Feb) | $900,314 | $354,146 |
| Condo townhouse | $963,700 (Feb) | $799,029 | $164,671 |
| Condo apartment | $808,566 (March) | $708,636 | $99,939 |
Where is the GTA real estate now?
The GTA housing market experienced a historical correction in 2022. Over the last 9 months, the average price has come down 18.36% and sales volume has come down 45%.
The average price rose in GTA by 48% in 2 years. We can all agree it was unsustainable. If prices didn’t correct, then we’re in a bubble. No one wants a bubble. Bubbles burst.
This adjustment is a good thing – good for the real estate industry, good for buyers, and good for the market. The market has finally slowed down from elevated historical levels that were fueled by emergency interest rates.
COVID frontloaded sales activity from the future. Home buyers got the benefit of a recession with low interest rates without the cost of a recession with low unemployment rates. There was an urgency to get into the market. Gifting from parents to help buyers get into the market was at an all time high.
We are now in the future and the future is catching up. This is the reallocation of activity over time because of interest rates. Due to high inflation, the Bank of Canada (BoC) had increased 400bps in 2022 from 0.25% to 4.25% today, and it is the fastest and likely the largest cumulative tightening in 27 years. Mortgage payments have risen up almost 40%, and buyers are qualifying for less. Variable mortgage holders are feeling the pinch.
There is less demand but there is also a lack of homes for sale, some homes are still selling with multiple offers.
Prices have come down from the peak; however, if you bought prior to 2020, your home value is still up. Up 48%, down 18%, you’re still up ~30%.
On the rental side, rent is on the rise. The average rent for a 1 bedroom condo in the GTA has gone up 20.4% over the past year.
One of my clients rented out their 1+den for $2250 in March and the tenant moved out at the end of October for a new job out of town. We just rented it out again within 24 hours on the market for $2500 and we could’ve got $2600 but wanted to find the right tenant. Another client of mine rented out their 1+den for $2350 in July with a tenant who paid the year in full.
The competition is strong with low inventory and high demand. Many buyers are forced to rent because the cost of borrowing is too expensive to buy.
Where is the real estate market heading?
Sales volume is going to pick up in the spring season, but not by much. Prices will continue to trend lower, until mid 2023 when interest rates stabilize. The biggest price drop has already happened.
We need to understand supply and demand, and there are 3 main things that will determine the demand:
- Unemployment Rate
- Immigration
- Interest rates (or mortgage rates)
Unemployment Rate
The unemployment rate is the number we are watching closely. Jobs determine if people can afford their homes. Distressed sales coming from homeowners who experience a job loss could further drive down the home price. Moreover, job losses can also lead to pessimistic sentiment about the economy as more buyers become anxious about their job security. It could lead to a further drop in buyer demand and result in more price decline.
Keep in mind the BoC would choose a recession over inflation any day. One of the methods to bring inflation down is to increase unemployment. Currently, we have a low unemployment rate and there are 1 million job vacancies in Canada. The shortage of labour is particularly in the service industries with the biggest needs are in construction and in nursing.
Immigration
We’re on pace to bring in 430k newcomers this year and that number is projected to increase in the coming years.
2023-2025 Immigration Levels Plan:
- 2023 – 465,000 new immigrants
- 2024- 485,000 new immigrants
- 2025 – 500,000 new immigrants
All of these people will need a place to live, whether in the ownership or rental market.
With most newcomers gravitating to the largest cities, more demand in the places that already have the most expensive housing markets. Even with the housing being so expensive, there are still 2.2 million applicants waiting to come to Canada.
In fact, Ontario attracted 39.0% of newcomers who arrived in Canada between 2011 and 2016, and over 75% chose to stay in the GTA base on the 2016 census.
Interest rates
Interest rates determine how much buyers can afford. We’ve seen how low rates have pushed the housing market up and now with higher rates how it’s slowed things down. Rates are expected to go up a little bit more and are expected to stay at those levels until 2024. Depends on how inflation goes.
If and when rates come down they’re not going to come down anywhere near where they were before. If the BoC inflation target is 2%, interest rates have to be higher than that to maintain it. When rates come back down they should settle around 3-4%.
With rates increasing, payments are increasing and some people might not be able to keep their homes. This might cause some sellers to sell in distress. Causing more downward pressure on the price. However, we have not seen this trend so far. The market seems to have stabilized even with 3 interest rate hikes in that time. (If you’re feeling the pinch, I would recommend you hold on as much as you can.)
If the BoC overshoots, this can cause a bigger issue. If inflation is not behaving, interest rates will have to rise even more. That’s why the last increase of 0.5% was a great sign. The entire market gave the BoC the green light to go up 0.75%, but they wanted to make sure they didn’t overshoot.
Ontario Housing Supply
The More Homes, Built Faster Act was passed by the Ontario legislature on November 28 and was passed fairly quickly. This is the Ontario government’s plan to build 1.5M homes in the next 10 years. However, most local municipalities are against this provincial act. This is a good start, but I don’t think they will hit their target. You can read our summary of the act here.
⅓ of projects in GTA are cancelled or delayed. Home builders are not in the business to flood the market with homes to drive down housing prices. No money is to be made by the developer. On top of that, there is a shortage of labour, and material costs are too high.
Our politicians promote solutions they know will fail (double completions, force developers to build affordable housing, etc). Why? because they want the housing price to continue to go up…
Immigration is the steady increase in demand and if supply doesn’t keep up, home prices have nowhere to go but up. The only solution to the housing crisis is we need more homes, but it doesn’t seem like it’s happening. We’ll have to see how this develops.
Top reasons to SELL:
You need to upsize – not downsize!
We ran the numbers, upsizing can save you over $300k compared to the peak. Move up in a down market is a smart idea. Higher priced homes took the biggest hit, lower priced homes dropped less.
You need to move – Job, Family, retirement, etc.
Perhaps you’re relocating to live closer to friends or family, or found your perfect job in another city. Maybe you are retiring, then it’s time to get ready to buy your dream retirement home in a hot, warm area.
You need the cash in-risk of losing your job, and reallocating your assets.
If you’re considering selling because the payments are getting tight, I would recommend that you hold on as best as you can. Remember, staying power is power. However, if you’re really feeling the pinch and you want to know what options you have, book a call with me here.
Top reason to WAIT
If you don’t have urgency, keep it.
You’ll be glad you did. As we are heading towards a Buyer’s market, the housing prices will trend down a little more in 2023. If you don’t need the cash, Rent it out instead!
Even if payments are getting too expensive, you could rent out your house and you can go rent something smaller until the market returns. Obviously, the numbers have to make sense, but this might be an alternative to selling. Rental prices are up, if you can ride out the next 2-3 years, rent it out and then sell when the market has returned.
You’re happy in your home.
Financial incentives alone don’t mean that you should sell your house. Fear of prices coming down shouldn’t be enough for you to sell. If you sell, you’re realizing your loss with no future potential of growth. I am bullish on the long term market for the reasons mentioned above.
Real estate is a long term investment, the market will come back! If you’re happy where you are and don’t have to sell, it’s better to wait until you’ve got more clarity.
You haven’t lived in your home that long
You may have negative or low equity if you purchased in the last year. If your home value has dropped below what you paid, you might have to wait it out because you’ll lose more by selling. But if you bought prior to COVID, your property has most likely grown, even with the recent drop.
At the end of the day, it’s your personal decision.
The fundamentals of the market are very strong. Immigration coming in is higher than reported. We are under supplied in a big way. The market is currently experiencing a reallocation of activity, we front-loaded activity during COVID and the market is ‘resting’ now.
If you need to sell, you deserve an agent who understands how to market your home to get exposure and a strong negotiator who can fight for the largest investment. Gone are the days when any agent can put a listing on the MLS and have 40 offers.
Book a free call with me for a more in-depth custom approach to managing your real estate position. I can simplify the process, formulate a plan and walk you through the steps.