If you’ve bought real estate in Toronto in the past ten years you know it is stressful. You feel like you’re buying at the peak of the market and you worry that the market is going to change tomorrow. To mitigate the stress, a lot of buyers decide to wait out the market. They want to wait until the ‘bubble bursts’ before they make their purchasing decisions. They want to, in short, play the market. Any investor will tell you that playing the market is very difficult. But beyond trying to predict the unpredictable, there are some other problems with trying to buy a house in a crashed market.
- If the Toronto Real Estate Market crashes, everything else is going to crash with it. A housing crash likely means that the job market will also be decimated and that interest rates will be sky-high. Unless you’re sitting on a pile of literal gold chances are good that you won’t be in any position to buy a house in a market crash.
- Toronto homeowners hold on to properties: When the market dips a bit, and it does occasionally do that, we have found that homeowners do everything in their power to hold on to their property. They re-finance, rent out a portion, get an extra job, or get private loans from family members to hold on. Most people who own property in Toronto view it as their single largest asset and will not sell in a market downturn unless they are in an absolute dire place.
- You can’t have your cake and eat it too: Most buyers also have a home or condo to sell. If are trying to take advantage of a market downturn as a buyer, expect that you will also need to sell your home for slightly less money than you hoped for.
- From an investment perspective, waiting for the market to turn is more expensive than jumping in. According to the Toronto Real Estate Board, the average price for a detached home went up 8.1% in December 2020 over December 2019. That number was 15.3% for semi-detached homes and 17.7% for townhouses. Unless your investments are making you 15-20% a year, your purchasing power dwindles with every year that you wait for the crash.
- When a market downturn comes, you won’t see it. We had a downturn in 2017 after the announcement of the foreign-buyer tax and we had another one in 2020 during the first few weeks of the lockdown. However, buying activity basically stopped during those periods because buyers and agents were expecting the market to go down even further. In both cases, the market came back stronger than it had been before.
The Toronto market faced a huge public health and economic crisis this year, and still went up. Condos suffered a little, but that market will be quickly restored. If we got through 2020, I really don’t know what it would take to slow this market down.
As always, stay safe! — Robyn Vander Vennen, The Kim Kehoe Team.
