Over the past few weeks, many people who have bought property this year have been worried that Toronto real estate market is cooling down. I analysed the numbers and the market, and I’m here today to tell you that all will be well. A lot of people who bought property in February are looking at what’s happening on their street right now. Prices are down, they may afraid of the Housing Market Crash. Outside of Toronto, they may be down 20 to 30% from their peak in February. And a lot of people are starting to panic. I want to bring some clarity and calm to this situation and show you data like: What’s the worst-case scenario that could happen? What is the realistic scenario? And what is the best-case scenario?
We’ll cover all of that and more in this article. I’ve called so many people who are really worried that will the housing market crash and they are literally thinking about selling now the properties they bought in February and losing hundreds of thousands of dollars. Please always remember that time is your friend in real estate. Today I’m going to show you three examples. The last three times we’ve looked at market peaks: How long did it take the Toronto real estate market to get back to its peak? When did people actually buy? What will be the realistic scenario for all buyers?
We analysed Toronto Real Estate market data from the last two years and compared February 2020 to February 2022, and I will tell you the average prices in the Greater Toronto Area and what they did in those two years. The 40-year average of price growth in the City of Toronto is about 6-7% per year. That money in the bank would not return the same amount for the investors. Therefore, it is difficult for those who haven’t invested in the real estate market to save money at the same rate as the increases of the real estate market.
Next, we will analyse the different areas of the GTA and break down what happened. Remember this, we’re comparing February 2020 to February 2022, so it’s a comparison between the peak of the Toronto real estate market and a period of the market that was good, but of course far from what’s happening now. Thus, Peel Region, and Brampton, has seen a 66% increase over the past two years, starting with just under 1 million, and now at 1.6 million in February. While Caledon is up 95%. It has literally almost doubled in 2 years. Since it’s normally 10 years of growth in a 2-year period. It’s not surprising that when rates go up and things change in the world, there is a pullback from that price peak. And in York Region, there are 78% in Aurora. King City, 141% in the last two years. These are mostly luxury properties on large lots. But in Durham Region, Clarington increased 86%, Brock increased 130%. I want to draw your attention to Toronto. West Toronto is up 38% in the last two years. Downtown is up 37% and the east is up 48%. All of these numbers are well above the annual average of 40%.
But compared to the foreign markets, Toronto’s real estate market growth has been “a little bit reasonable” over the last two years compared to other cities worldwide. And, of course, the reason is that prices in Toronto were already considerably higher when the pandemic started, when people start moving out, start saving more and start having different lifestyles, the city was never going to see that kind of growth. From the February peak, before rates go up, these markets outside of Canada that have doubled in two years will have corrections, that’s just a fact. But if you’re a buyer who has bought in any of these foreign markets in the last two years, I want to tell you the actual data and give you an idea of how long it’s going to take, to get back to the original price growth.
let’s move on to the next Toronto Housing market analysis. We analysed historical sales price data from the Toronto Real Estate Board, going back to about 1976. We will use three examples to tell you who bought at the peak and what happened in the time, and how long it took for prices to come back up. Now, let’s make something very clear that Canada does not restrict immigration, even if interest rates go up, they have to go up. So at some point they can bring them back down. And the unemployment rate is very good, as if the market fundamentals are still strong. But what happened in the last two years is absolutely crazy. So, technically, we’re still in a seller’s market, just on a monthly inventory basis.
But we’ve gone so fast that expectations have to change. Let’s say you bought a property in 1989 for $250,000. Two years earlier, in 1987, the median price was only $173,000. And then things went downhill. We had the downturn in the early 1990s, and you have to go back to 2002 to get back to $250,000. So, people who bought in 1989 and held their shares for a little over 10 years got their money back. Again, this is an average price, and micro markets are different. So take it with a grain of salt. It depends on what you bought, where you bought it, and exactly what you paid in 1989. But, on average, it took a little over 10 years to get back to that point. As a result, anyone who bought in 1989 and sold before 10 years probably lost money. Immigration, interest rates and many other factors were very different then. I definitely don’t think that’s what’s happening with our market, but we will see corrections. So that was the worst we’ve seen in the last 40 years. It’s taken 10 years to give that perspective.
The next Toronto real estate market move was in 2008, which was interesting because while America was experiencing its housing crash, prices in Toronto in particular were not falling. In fact, they went up $3,000 over the previous year, and they went up even more the following year. But in 2007, we had 93,000 sales. And then in 2008 we only had 74,000 sales. Then it went back up steeply to 86,000. It’s not that prices went down here. It’s just that people were nervous and nobody was selling real estate. People weren’t giving away real estate. 2008 was kind of an accident for the real estate market in Toronto. There was a kind of calming down, but our prices didn’t really go down.
The most recent example is 2017, our average sales price was $822,000. Keep in mind that this is the entire GTA. Now if you bought a house in Durham in 2017, in April of that year came Fair Housing, the foreign buyers tax, and a list of all the other things that the Ontario Liberal government was introducing at that time. And then came the stress test in early 2018, on January 1. All of those factors have caused home prices in Durham Region to drop 20 to 35 percent. We’ve seen that just recently. Since then, it took until April 2017 and late 2019 or early 2020 for prices to recover. But if you had bought a house at the peak in April 2017, if you had kept it and sold it at some point last year, you still would have made a lot of money. I’m just trying to put into perspective that time is your friend. So, when I look at where the market is today in its fundamentals, I don’t think it’s going to be a crash like it was in the late ’80s, even though a lot of people wish it was.
I think it’s going to take some time here years for prices to get to the level they were in 2020. I don’t think it’s going to take the city of Toronto as much time to recover, as the outside markets, because Toronto has high demand even greater than the outside markets.
That brings me to my next thought process: where is the opportunity? There’s a famous phrase from Warren Buffet that a lot of people quoted at the beginning of the pandemic: “Be fearful when others are greedy,” which I assume has been the case in real estate over the last two years. And be greedy when others are fearful.
So there are always opportunities, even in 1989, as we mentioned above, when the real estate market collapsed, then 40,000 properties were resold. People still have to move in the market, no matter what happens with the interest rates. There are different things that happen in life like marriage, new job locations that push people to buy new houses and move. So even in the worst market conditions, there are still real estate transactions.
Finally, I want to tell you where the opportunity lies based on Toronto Housing market analysis above. I have already thought about it a lot, and here is my perspective on what I’m going to do this year. I’m going to sell one of my condos this year, because I want to get the money out and have the money in the bank. And then I plan to buy a house in the next few months because the prices will be lower. But I won’t wait for a few years because prices are going to go up again in the city of Toronto in the next few years. It’s going to cost me more. I would rather buy it now and use the equity in that home. I’m doing that because the prices at the higher end of the Toronto real estate market are going to go down more because it’s all percentage. If a condo drops 20% and a house drops 20% at the same time, a house drops more than a condo.
I think there’s a good opportunity right now for buyers who want to upgrade. It was really difficult when houses were selling at the same pace, if not faster, than condos or townhomes. When markets stabilize or go down, it’s a good time to strike. If you believe in the fundamentals of the market, I think immigration will remain strong in Toronto, and interest rates will remain relatively low by historical standards. I also think unemployment will be low. And those three factors will help me make my decision to buy a house.
There’s a great opportunity for a lot of newcomers this year, because on a percentage basis, a property that used to cost 1.2 million might now cost 1 million. But for your condo that you could have gotten for $700,000 in February, you can now get as little as $660,000. It’s a good opportunity for buyers who want to upgrade. In the next few years, the amateurs are going to want to sell and get out of the market. The pros will hold on to properties. They’re going to hold on for a long time, because when you buy a property, you hold it, and you don’t sell it unless you want to buy it back or a life situation forces you to sell.
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