Things are returning back to normal again

TRANSCRIPT

Today is Monday, June the 19th, and this is what’s happening in the condo market this week.

Thanks for tuning into this video once again, I’m back after a little bit of an absence away from doing these weekly videos. Main reason is the market has been insanely busy and I have not have as much time to do my usual videos as I would like, but I’m back now. Happy to be back again.

A few quick announcements before I begin. First one is these air pods are amazing, if you have an iPhone, if you’re looking for wireless headphones, definitely pick up a pair of these. They are awesome. Secondly, congrats to all the purchasers at No Boo, all my clients who have been able to purchase a unit at No Boo. These are one of the contracts here for the No Boo residences. Fantastic opportunity, fantastic building if you’re still looking to get a unit at No Boo let me know, we can still probably squeeze you in before the prices go up, so contact me about that. Thirdly, we’re trying out a new thing here as you can see, the microphone. We’re trying out a new audio with today’s video so let me know what you think. Hopefully the results are a little better than they’ve been in the past. I do have a bit of a cold, apologies in advance if my voice sounds a little crackly today.

Let’s jump into it shall we. The first article is from the Toronto Star. Just picked a random article. There’s been a number of headlines like it in the past couple of weeks. The headline here is Toronto Home Sales Decline Continues into June. The number of house sales is still dropping as new listing hit the market is the subheader.

You’ve probably been seeing a lot of articles like this and headlines like this and wondering what’s happening in the market. Some of the comments in the article from John Pasalis, a friend of the show, over at Realosophy is talking about how the numbers are dramatically down from what they were before. Numbers coming off a cliff is one of the things that people are saying. It’s like we’re coming off a cliff. In some senses we are, remember we rose up so quickly that we created a cliff, and now we are coming down. Again, part of this is not so much sales are falling prices are falling, this kind of a story, it’s more just we’re returning to normal.

Again, as I’ve been saying in this videos, as I’ve been saying in the podcast and emails for months now, is don’t get used to these rapid and extreme price increases, 25, 30, 35%, as I’ve been telling you this is not normal. What we’re seeing, I believe, is fundamentally more of a return to normal. Again, it’s very early since the foreign buyer tax has been introduced, so we’ll definitely have to give it at least six months before we have a sense of how this has actually impacted our market in any significant and real way.

Right now we’re seeing a sort of a classic knee jerk reaction to new legislation. It’s important to note, anytime over the last ten years that the government has instituted a change to the market, we have seen right away a significant change in the market. What has happened every single time over the last ten years? After a few months, the market has picked up again and returned back to normal.

In this case, I think there’s a bit of that, but there’s also just a bit of, what I said, we’ve gone to historic highs in the past year, 35% year over year appreciation is completely and utterly not normal and we shouldn’t be used to that and expecting that as real estate investors. Now we are seeing a significant decline from those kinds of highs, and we should expect that. If anyone is expecting to keep going at even 20%, even 15%, this is not normal. We shouldn’t expect that.

Again, the long term 50 year average for Toronto real estate, you’re looking at about five to six percent appreciation year over year. We’re going to be getting back into that sort of a territory hopefully soon, although we’re still not there. We’re still in 15-20% range. Is that a dramatic slow down? I guess. 15-20% is dramatic compared to 35, but it’s still way above normal. We are going to see a return to normal, I believe.

Along those lines, the condo market, and I just did a podcast about this as well which you can check out, but the condo market itself is significantly outperforming the detached low-rise housing market, which is interesting. Condos haven’t really changed all that much at all, versus the low-rise market is seeing a slow down. We’re seeing a continued story here being the flight to affordability. Buyers go and buyer buy what they can afford. In times of uncertainty, when new legislation is instituted like they are now, buyers go to where there is perceived to be less risk, which is lower-priced properties in the condo market as opposed to the detached single-family home market which buyers perceive to be a higher risk, and so they’re taking more of a wait and see approach there to see what’s happening with this new legislation.

The next article is from condos.ca, blog post from our friends at condos.ca. Toronto Real Estate Market Slow-Down Won’t Last Long is the headline there. I couldn’t agree more. They’re basically taking a look at what’s happening in the market now in the condo market and they’re comparing it to what happened in Vancouver. Interesting, they’re also taking a look at what’s happened in Hong Kong. They’re taking two examples of other markets where major foreign buyer or a stamp or transfer tax has been instituted. In both of those markets recently, in the past year, we have seen the same thing that we’re now seeing in Toronto, this 15% tax for foreign buyers. Basically they’re taking a look at both those cities. What they find in both cases, what they show in both cases, is after a few months, things return back to normal. Many people were calling for that here in Toronto, I’m not saying I’m the first person that’s come up with the idea by any means. That is what the article is saying, that’s what I believe as well is going to happen here in Toronto, is things will be back to normal.

Fundamentally, nothing has changed. There’s still huge demand for people to live in the city. Economy has not changed at all. Nothing fundamentally has changed. It’s not like suddenly there’s an injection of thousands of, someone just built thousands of new houses or condos added to the marketplace, or suddenly thousands of buyers have been removed from the marketplace overnight. It hasn’t happened. Interest rates are still the same. Fundamentally, the fundamentals of the market are still the same, just one small tiny piece of the market has changed. We’re seeing that knee-jerk reaction. Consumers not always, in fact in most cases, consumers do not behave rationally. People tend to behave irrationally with these types of things, and that’s exactly what we’re seeing.

Over time, over the short term in the next few months, the market will pick right back up where it left off. Again, I hope that prices will not go back to 25% price increases, I hope it will return to more of a normal level of single digits at least, sort of five to ten percent range would be nice, would be healthy to sort of see. That’s where things will likely go.

Finally, the third article is an opinion piece from the Global Mail, Doug Saunders’ headline. It’s from a few weeks back now, but I think it’s important to read and ties in well with what we’re talking about here. Canadians Need to Replace Backyards with Balconies, is the headline. Basically, as you can imagine, talking about how the shift towards condo living needs to be a real thing in Canada for the housing market and for people to continue to survive and be sustainable and grow. Looking at other countries and how apartment living, condo living, high rise living is normal in most other places of the world, but in the psyche of the Canadian public at large, it still hasn’t taken place.

Interesting, just yesterday, I was at a sort of weekend Father’s Day even and somebody was asking me there, the classic question I always get is “Who’s living in all these condos? Are they full? Why are we building all these condos? It’s crazy, there’s so many condos. The skyline has changed so much.” My message to them was the usual is first of all, they’re all full, there’s no empty condos. Secondly, we’re not building enough condos. We do not have nearly enough condos being built to meet demand for condos downtown. Thirdly, which I think is most important here, is that this is the future. Condos are the future. Yes, we have a huge amount of condos in downtown Toronto, but you’re going to start seeing it in Whitby, in Oshawa, in Milton, in Burlington is already happening. You name the city in Southern Ontario, you’re going to see high rise condos. This is the future of living in Canada. This is going to become more and more the norm.

Anybody who thinks that condos are a fad or anybody who thinks we’re building too many and people are going to wake up and suddenly say, “No, I’m going back to the house.” It’s not going to happen. House prices are way out of reach for people. If you can afford a house, it means it’s probably a million miles away from where you want to be, where you work, where your employment is. Transit-oriented high rise development in cities across Ontario is going to be continuous sustainable trend. In particular, of course, downtown Toronto is our bread and butter. Downtown Toronto is where we’re going to see the most growth and the most demand moving forward as well.

There you have it. Those are the three articles for today. I hope you enjoyed this episode. If you did, please go ahead and share this with somebody. Click the share button, click the like button, pass it along to somebody, it will be much appreciated. Until next week, I will talk to you soon.