What Happened to the 2018 Toronto Spring Real Estate Market?

Patrick Rocca of Bosley Real Estate helps us understand what happened (or didn’t happen) in the 2018 Toronto Spring Real Estate Market.

 

Jeff: I’m here again with Patrick Rocca with Bosley Real Estate. And we’re gonna talk about the 2018 market, or potentially the spring market that never actually blossomed. Patrick, I wonder if you could introduce yourself and tell people what you do at Bosley.

Patrick: Sure, good morning. Patrick Rocca with Bosley Real Estate, here in Davisville. I’m the top agent in the Leaside, Davisville area, and been working in this business for over 26 years.

Jeff: Fantastic. Now I know every time we chat, I say, “Can you explain to me the market?” Because to me, as an outside observer, it seems kind of unprecedented. And I know we just talked, it’s been six months, so much stuff has happened in the market. And people are talking to me and saying, “I really don’t understand what’s going on.” Maybe right off the top, you could talk a little bit about sort of the macro-trends that you’ve been seeing over the past six months.

Patrick: So I’m sitting here chuckling. You’re asking me to explain the market. No, I can’t explain it, so is the interview over?

Jeff: Not exactly.

Patrick: But all joking aside, it’s been a wild… I shouldn’t say wild ride. It’s been interesting. Our spring market, like you said, never happened. We expected to come out of the gate a little slower because of the stress test. We expected things to pick up a little bit. You know, it was almost like we were expecting, we were expecting. And every time we were expecting, nothing happened. We were expecting maybe after March break, maybe after Easter, you know, maybe after the May long weekend. Now we’re after the July 1st weekend.

It’s been flat. It relatively has been flat. We are not seeing price decreases anymore. I think if you go back, not only to the last time we talked, but maybe even the fall of last year, I had said that we had bottomed out. After our 30% jump last year, our 20% drop right away after April, May, June, and then flat throughout the rest of the year, we have remained flat. Have we seen 1% increases? We’ve seen little blips, like 1% one month, 1% the next month, down 1% the next month. But I would say relatively, we’re flat.

And the explanation behind it? Hard to say. There is not a lot of product on the market. We’re still lacking supply. There is demand out there, but I’ve been seeing that buyers are just… a lot of buyers are still being very unrealistic. I’m seeing it weekly. And again, I think a lot of that has to go with the agents that are involved, as well.

I did a “Global Mail” interview a couple of weeks back, and I was saying that part of our problem is that agents… well there’s a lot of new agents, there’s so many agents in the city. There’s a lot of new agents, and they’re not educating their clients properly. When a property’s priced at x amount of dollars, and they’re telling their clients to come in $200,000-$300,000 under asking, when it’s priced at..it’s already good value compared to what it was selling for last year. Case in point, I just reduced a property yesterday, it was listed at $1,349,000, probably would have sold for $1,500,000 last year. Definitely worth the $1,300,000, I just reduced it to $1,319,000, I got an offer yesterday a hundred grand under, from an agent. I’m like, “Are you kidding me?” The one across the street sold for $1,280,000, and this is a better house.

So I said to the agent, I said, “Do your homework. Educate your client. I mean, we’re prepared to negotiate.” And it is a negotiating market, there’s no doubt about it. But this isn’t a blood-bath. It’s just a normal market. And unfortunately, there’s a lot of agents who don’t know a normal market.

Jeff: Yeah, that’s exactly right. And I think they’re doing a bit of disservice to their client by really going in very, very low. It’s almost like if you’re trying to price it aggressively, then people should be able to say, “Okay. I know that the market’s been up and down.” But really look at the entire market. What are you actually getting in the greater context? Is it a solid home, is it a great location? You know, great schools, walking distance to services, that sort of thing.

And then unfortunately, I know people really have a hard time understanding that the price of a detached home in the Greater Toronto area is really close to seven figures. But the reality of the situation, where we are right now in Toronto, with the economy the way it is, I think that’s going to be the future. I don’t see prices coming down 20%, 30% back to a level that we saw in the late 2000s. I just don’t see it.

Patrick: No, 100%. I think we had our drop. I think this is, and I’ve said this before on numerous occasions, maybe with you, or maybe even with “The Globe,” or whoever I’ve talked to. It’s a good time to buy. And I’m not just saying that. I mean, when you look at this house that I have, it was just at $1,339,000, we’re at $1,319,000 right now. I just sold the one across the street for $1,280,000 two months ago, and this is a way better house. And you’re telling me I can’t get $1,300,000 for it? And these people come in way under. It’s just mind-boggling.

And we’re flat. There’s good opportunities to buy. But it’s just interesting. I’m not sure if buyers are still skittish, if they’re getting bad advice… It’s very interesting times.

Jeff: And I’m looking at a chart right now, just released by “RoyalLePage,” and it says that the average price, year-over-year, was pretty much flat for most homes across the Greater Toronto area. And they’re predicting a little bit of modest increase in the fall market. I guess part of it is, like you said, both buyers and sellers have to become more realistic about this market. And like we saw, 2017 sellers were incredibly unrealistic where they were continuing to price higher and higher and higher, and then the buyers just stopped showing up. I think that the sellers and the buyers are gonna have to come to the realization that we need to educate ourselves. We need to see really what the fundamental value is here, and be able to pay accordingly.

Because again, this is not something where ideally you’re gonna buy this, you’re gonna flip it in a year-and-a-half. Hopefully people are buying more for the long term, they can understand the value of a great property.

Patrick: Yeah no, I agree. I think the speculation component of this market is a very dangerous game. I’m advising my clients against it. I’m not seeing any of the good speculators that I’ve known from the past involved right now in this market. And you’re right. Real estate, in general terms, has always been buy, hold, live, enjoy. And yeah, you know what? Make your 3%, 4%, 5%, 6% a year.

And just getting back to “The Royal LePage” Study, there was a lot of news this week, I think I saw an article in “The Star,” there was one in “The Globe.” You know, I agree with that. And quite frankly, I don’t think that you have to look at stats or anything to say that that’s what’s gonna happen. It’s a flat market, there will be modest gains. They haven’t said what modest gains is, but I would say 1% to 3%. We’ve already seen maybe 1% this year. So I don’t think you have to be a rocket scientist to predict that. And is the fall gonna be better? I don’t know. I just still think we’re gonna be flat. And I mean, what does that mean? It means that houses, when you list them, you have to advise your sellers that, “Listen. This might not sell in a week. It may take two, three, four weeks. And the likelihood of you getting over asking… can’t guarantee that, and you can’t rely on that.”

And again, the market, if you look at it in different pockets and different price ranges it’s different. There’s still stuff selling for over asking. But again, it’s price-sensitive. You list something in East York for $799,000, $899,000, boom, it goes. You list the right property at the right price.. I mean there was one in Leaside a few weeks ago, and it was drastically underpriced. And it sold for over asking. Well of course, right?

So it really depends on the pocket, the market, the price-point. Right now, anything over 2.5, very quiet.

Jeff: Yeah. And that’s what I’ve been hearing. I was talking to someone yesterday and they were saying that they were talking to people who were in a neighborhood where the product is priced, like you said, over 2.5 to 3, and nothing is moving. Stuff is staying on the market for months. Where he was saying that he was observing that really anything under 1.5, in his area, which I guess would be what a starter-home is in this strange market, was going very, very quickly. Because I think that there’s a situation where people are still trying to get into the market. And those lower-priced properties will tend to see a little bit more action than the higher-priced properties which tend to be a much, much bigger commitment.

Patrick: Yeah no, and I would agree with that. It’s funny, when we talked a year ago, or how long ago? Early last year. And it was, anything under 2 is the sweet point, or anything under 2.5 was the sweet point. You know, and then it went all of a sudden, anything under 1.5. Now even 1.5, I mean like I said, I’m sitting on a semi for 1.3. And semis are sitting. They’re not selling overnight in that 1.3 range. I mean the sweet spot right now again is under a million. It’s gone from 1.5, in my opinion, in my neighborhood, it’s 1.5. At least that stuff is selling, 1.5, 1.6, 1.4, 1.3. But it’s not selling right away.

The stuff that is selling right away, you go into the East York market, you go into the Leslieville market, the stuff that’s under a million, that’s where the sweet spot is. And I think a lot of that, again, is tied into the banks and the financing and the stress-test. And the banks are really making things difficult now for buyers. I had a deal fall apart about a month ago because of financing. And we’re seeing a lot of financing conditions now.

Jeff: And that’s such a change from a year ago, and from the previous five years. I just want to talk a little bit about both buyer-seller psychology where it looked like, with multiple-offer situations in the past, it was more like a psychological game, a negotiation game, where you would go in sometimes with a very very strong offer, $100,000 or $200,000 over, to make sure that you got the property. Or as a seller, you decided that you would put the property on the market for three or four days, take offers over the weekend, and then have an auction with several multiple-offer situation.

So right now I think a lot of clients would be better served if their agents would go back to fundamentals and say, “Ten years ago, this was a rare occurrence, and we were pricing based on fundamentals.” Location, like I said, quality of the property, age, all those attributes which form a strong long-term investment. Rather than, “Can we outmaneuver someone for this property?”

Patrick: Yeah no, 100%. On the listing side, I’m very clear with my clients. I have been for the last four to eight weeks that, “Listen. We’re listing it at x. You’re not very likely to to get x plus, and be prepared to sit for a while. And you likely will get x minus. And the multiple-offer days are gone, in my market anyways. Or very rare. I shouldn’t say they’re gone because we’re still seeing them, depending on the situation. But yeah, you have to be realistic about you’re pricing, and where the market is today.

Jeff: Mm-hmm. And one final comment. Again, I know we always talk about this, but I was talking to a client earlier this week. She’s in the Davisville Village area, and they have two small kids. They have a semi, and she was saying that they were looking for a move-up house, because their family’s growing. And they decided that to get into that next level, with a four-bedroom home, was going to be a significant amount, in terms of their monthly mortgage payment. So what they’re doing is they’re taking a chunk of equity and they’re actually renovating, adding on to their property. Because they love the area, everything about it they love. It’s just, for them, not enough space right now. So that’s the approach that they’re taking.

And they’re really in it for the long-term. They’re saying, “We’re gonna do this, we’re gonna be in the house for at least 10 years, so why not spend that money on the home, versus on other things like land transfer fees and taxes and all that other sort of stuff.

Patrick: Yeah no, agreed 100%. And I think we discussed this the last time we had a chat. I’m starting to see that a lot. People are staying, renovating. And I think that’s what’s, obviously, affecting the market a bit too. Because you’re right. There’s the commissions, the land-transfer tax. The lack of good supply in this area, if they’re looking at moving up, they have to buy something and put money in to it, possibly. So yeah, you’re right, 100%. We’re starting to see that a lot, and obviously that’s where you come into play. So yeah, the renovation market, we’re seeing a lot of that happening.

Jeff: And it’s interesting because the more people that do that, I’m not saying that this is a conscious thing, but it takes product and supply off the market, which again is a little bit challenging for a buyer coming into a situation where they’re looking at a good area where they want to live, they want to grow up, and they want their kids to grow up there, and then they find that they just can’t find a house. It’s very, very frustrating. Where before it was price, and now it’s supply. There’s just not a lot available that’s suitable.

Patrick: Yeah no, exactly. No 100% right. I agree with that. If you look at inventory levels, it’s really illogical. Because supply and demand, simple economics, if there’s no supply and there’s demand, obviously prices should go up. Well there is demand, and there’s not a lot of supply. So it’s illogical that things aren’t rising. But the supply that’s out there, there’s still stuff sitting that’s been sitting for a while. And that’s the problem, right? And there’s not a lot of good supply coming to market.

Jeff: Yeah, yeah. And one of the thoughts I just had was that if the speculators are kind of being taken out of the game now, a lot of that activity may have been driven by that speculation. That year-over-year price increase. If those folks aren’t coming on to the market, and they’re not participating as much, then people are… they don’t see that activity. If you’re a seller, then maybe you’re thinking, “Well, I don’t want to sell for under what I think my property is now worth. And I’m used to these 10% year-over-year gains, so I’m gonna hold off for a bit.”

And that, on the seller’s side, percolates down. The buyers think that now it’s a fire sale and they can get product for $200,000 under asking. So I think that it’s definitely taking a while for the psychology to ripple through the market. I think that once that happens, probably I think you’re right. The fall market may be modest increases. I think it’s gonna take until the new year for people to figure, “Oh, this is the new normal. We have to price fairly, and we actually have to offer fairly to get what we want.”

Patrick: Yeah no, I would tend to agree with that. I would really tend to agree with that. On the other hand, I was talking to a client yesterday who’s got a gorgeous home. And he’s standing pat now. Obviously, I’m trying to get him to loosen his price, because I think he was over-priced in the first place, I overtook the listing. And he’s hoping that our new premier is gonna retract the foreign tax. Which I said, again, you’re waiting on something that might not ever happen. And will that spark the market? It could possibly spark the market. So you just don’t know, right?

I tend to agree, I think there will be flat, modest gains maybe throughout the year. And who knows? Spring, traditionally, is best. But this, I gotta tell you, 26 years, this was my weirdest spring.

Jeff: Yeah, and the volume definitely does affect you as well. I mean if the market’s going well, obviously agents do well. If the market’s going down, sometimes they do well, depending on their focus as well. But in a flat market with not a lot of transactions, no one’s doing well.

Patrick: Yeah. It’s a different way of doing business. Now listen, I’m not complaining. But I mean, it’s more psychology. It’s trying to engage people to understand the psychology of the market and the dynamics of the market. And how it’s changed. And you’re doing a lot more explaining. And fortunately I’ve been in the business long enough that I have that experience. People come to me after a week and they’re like, “My listing hasn’t sold. What do I do?” I’m like, “You’ve gotta work.” And I’ve said that before. You’ve gotta do stuff.

Jeff: Yeah. It’s no longer the free-ride it used to be.

Patrick: I know.

Jeff: And it’s back to fundamentals. You have to actually work, on both sides. Seller, buyer, do your research. And especially as an agent, if you’re buying or selling, chose your agent wisely. Someone who’s got that experience who really can know and tell you what the value is. Because it’s not just say, “Price 10% above what it was last month.” You have to know exactly what’s going on in the market.

Patrick: Yep. I agree with that 100%.

Jeff: Fantastic. Well Patrick, as always it’s been incredibly educational and entertaining. And I look forward to our next chat. We’ll see what our predictions were, and see how the market’s going again.

Patrick: Yeah, I think it will be interesting to see what happens over the summer. I mean normally we have that summer slow-down. And it is a bit slower. And it’ll be interesting to see if it just continues flat throughout the summer, or if it can get any slower, if it does get slower. But yeah, it’ll be interesting to see. It’s always a pleasure to talk to you, Jeff.

Jeff: Perfect. And if people want to get a hold of you, what’s the best way for them?

Patrick: They can call me through my office at 416-322-8000, or email is always good, mail@patrickrocca.com

Jeff: Fantastic. Thanks again, Patrick. And I know we’ll chat again soon.

Patrick: Absolutely. Have a great day.