The Tale of Two Markets – What’s Actually Going On?!

Published on 10th January 2019

If you are a casual follower of real estate in Toronto (which everyone seemingly is these days given the number of opinions people have on this subject matter), then there is a very good chance that you may be confused about what exactly is going on in the market. It may even be more confusing than the bookcase in space scene in Interstellar (all Christopher Nolan movies require a re-watch!).

So allow me to shed some light on it for you and to clear the air of any confusion there may be. There are two narratives in the Toronto real estate market right now. Well, actually, it’s more like two and a “half” narratives, but I’ll explain the half part of it later.

Narrative #1 – The first narrative is the slow down, crash, stagnation, or whatever you want to call it, of the market.

Everyone is going to focus in on the end of the graph (the area circled in red) that depicts the drop in prices to $787,300 or a decrease of 4.3%. This drop in prices is for all of the GTA as a whole, which will lead many to lose their minds. Before you freak out, do take a deep breath (or maybe a few more), do some yoga, and drink some chamomile tea.

Even worse, if you read some headlines, they’ll try to mislead you and tell you that “sales are down 19%”. While the fact that sales are down 19% is true, sales in this context actually means the number of the transactions. We closed the year with 77,426 sales, which is down from 92,335 in 2017.

So that is narrative #1. Whether you choose to follow and digest the news of this narrative is completely up to you.

Narrative #2 – The second narrative is the complete supply disaster, that is, the Toronto condo market. The lack of supply caused a huge spike in both purchase prices and rental rates.

If narrative #1 is true, then how can narrative #2 also be true? If the market is supposed to be trending down, somebody please tell me why the condo market is going the opposite way! We saw an 8.7% increase in condo prices in Toronto in 2018!

So there you have it – Toronto’s real estate dichotomy, a tale of two markets.

How Is This Happening? Well, in short, it’s essentially what I have been preaching for all of 2018 and will probably continue to preach in 2019 as well. The markets sub-$800K are super strong while markets over $1.2 million are incredibly weak.

You can see that the chart above showcases each subcategory and how they performed pricing-wise relative to each other. Green means increased in prices and orange means a decrease in prices.

Toronto and the Half Narrative – This is where the “half” narrative comes in. With the decrease in prices, the confidence in the 905 is at an all-time low and the millennial generation, who are now slowly becoming the primary purchasers, prefer the urban density approach to lifestyle as opposed to suburban sprawl (unlike the baby boomer generation who preferred the suburban life).

Combine all of those narratives and the availability of credit due to the stress test (purchasing power) – ladies and gentlemen, that is exactly what is going on in the GTA real estate market right now.

In 2019, we will continue to see more of the same with a slight uptick in buyer confidence. If you want more in-depth expectations for 2019, then you can read last week’s Insight Article here: What to Expect in 2019’s Real Estate Market!

If you know that you’re going to make a move in 2019, but still not sure about what kind of move to make, then make sure you give us a call at 416-436-9436 to see how we can help.

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