Overview of this Year's Real Estate Happenings

The year started out with a hot market. Both the number of sales and the prices were up year over year. These increases occurred even though the Office of the Superintendent of Financial Institutions had insisted in the fall that buyers with less than 20% down qualify at the posted bank rate rather than the rates available at the financial institutions, referred to as a stress test.

Despite this, many buyers who found themselves in this category still chose to move forward. Some dipped deeper into the bank of Mom and Dad while others decided to forego a house in favour of the less expensive option of a condo.

People had to look at various options as the market was changing so quickly. For several years, prices in the central core had been rising at approximately 10% per year. However, by March of this year prices were up an amazing 33% year over year! This was, of course, unsustainable.

By now some buyers were calling fowl, claiming that first time buyers who had lived in Toronto their entire lives couldn’t buy a house as they were being consistently outbid by foreign buyers with deeper pockets. In response, the government imposed a 15% foreign buyers’ tax. However, there were so many loopholes that it actually had very little effect – at least in central Toronto. (If you would like a complete explanation of the foreign buyers’ tax effect, or lack thereof, I am happy to send you my complete article which was posted earlier in the year.)

The government imposed this tax just as the sales activity in the market was calming to some degree. The ultimate effect being a “wait and see” attitude on the part of the buyers where sales activity slowed as everyone decided to see how the tax would play out. They hoped prices would come down as a result. Furthermore, it was not only buyers who had some uncertainties and questions. Sellers also didn’t know what the effect would be which led some to put their houses on the market in case there was a price reduction. We now had a surfeit of houses and very cautious buyers.

Further uncertainty was created on two other occasions in the year when banks increased their rates. Now the OSFI has imposed a stress test on all buyers even those with 20% down which will take effect in January 2018.

Current Effect of these Changes

The “wait and see” effect lasted through the summer.

It took a while for a fall market to appear this year. By mid-September to October the buyers began to come back to the table and it is normal to see multiple offers on a listing again. However, it is not business as it had been. Where we had been seeing 7 to 10 offers on some houses, we now see 3 or 4 offers and they tend to be more conservative ones. This means that if a house is well priced it will still see good activity, but as you may have seen, the overpriced ones will sit on the market for a long time.

In the current market there are opportunities for both buyers and sellers. Many buyers can take advantage of avoiding qualifying at the posted bank rate in order to buy while they can qualify at the lower rate. Conversely, eager buyers help those sellers who are looking to move on and sell their house.

While it is primed for opportunity all around, I would expect to see a bit of hesitation in the market come January while the effect of the new stress test settles in. That being said, I would think that in February, or soon after, buyers will better understand the effect of all of these new regulations which will help to calm buyer anxiety meaning that we should see a healthy spring market again.

Toronto is a great city in which to live. There is plenty of employment and always more and more people migrating to live here. These are things which don’t easily change. Beyond the brief hesitation caused by the new government regulations, you should see the market return to its healthy self again in 2018.