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Kevin Katai
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Seeking Market Outlooks

Kevin Katai
Posted Sep 26 2022, 14:14

Hey everyone, 

I wanted to get a pulse on how others are feeling about the Toronto market in the upcoming Q1 and Q2, with respect to sale prices. I know the data posted by TRREB has sale volume and prices dropping from the hot market of Feb 2022, but in terms of YoY, prices haven't taken much of hit (<5%). I know most of the literature on the topic exaggerates the recession, which serves to get clicks on articles, but is there any data that points to a lingering cold market and drastic price drops ? My feelings are that a lot of would-be buyers of 2022 actually bought in 2021 thanks to the 0.25% rate, which is partially responsible for volume being down, but 2023 buyers should push up prices if the rate hike stabilizes (especially rental prices being so high). I also believe a part of this low demand  in Q3-Q4 that we're seeing is speculation by the would-be buyers (to see how low prices may go) as opposed to a lack of affordability (once prices bottom out, how fast can the market get hot in your opinion?). The data shows inflation decreasing from 8.1% in June to 7.6% in July to 7% in Aug. How many more rate increases do you guys anticipate ? Can price recovery be slow even with a half a million increase in population for both 2022 and 2023 ? What effects are the rental market really having on sale prices ? Any insights on wage growth and purchasing power ?

I understand no one has a crystal ball, I just wanted to initiate a conversation with like-minded people and be more informed. If you know any veteran market analysts, agents, investors, I'd love to connect with them. In return, I'd be happy to offer guidance on any residential construction inquiries: budgets, permits, timelines, etc. as that's our primary business. 

Cheers 

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Adrian Ransome
  • Investor
  • Toronto
0
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11
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Adrian Ransome
  • Investor
  • Toronto
Replied Dec 22 2022, 08:51

Kevin, 

great commentary and questions. I think you have some of the information already at your finger tips to answer some of your questions. RE is under siege right now in Canada. As you posted out inflation is the biggest head wind that investors will face, although real estate does act as a hedge against inflationary events. I always think it best to separate the residential market into two factions - homeowners and investors. Although there can be significant overlap, the economic impact on each is very different. As you pointed out, the high activity in 2021 could very well be a "pull forward" of sales that should have normally taken place in 2022. However I think the frosting on the market is more relative to cost to carry tripling because of interest rate increases. The headwind is how our central bank is viewing the pace of inflation. for a while they tried to hide under cover of inflation being transitory. After months flowing into years, that BS was soon abandoned. Now the central bank is under fire to hold inflation back which is done through higher interest rates. However, this also has the effect of freezing out buyers as they loose affordability. I hear the call of 500k of immigrants coming to canada. This is where by bifurcation of the real estate market into tow factions comes in to play. Immigrants, typically rent until they can create credit and raise equity to acquire. The bulk of those new immigrants will put significant upward pressure on rental rates thereby improving values for the landlord class. With affordability locked in the rear view mirror, there is a huge wave of permanent renters that need places to live. I think that residential markets will continue to see downward pressure, while investment real estate will enjoy climbing valuations. 

There is a lot more to the market than this, but these are my thoughts.

User Stats

11
Posts
0
Votes
Adrian Ransome
  • Investor
  • Toronto
0
Votes |
11
Posts
Adrian Ransome
  • Investor
  • Toronto
Replied Dec 22 2022, 08:55

Kevin, 

great commentary and questions. I think you have some of the information already at your finger tips to answer some of your questions. RE is under siege right now in Canada. As you posted our inflation is the biggest head wind that investors will face, although real estate does act as a hedge against inflationary events. I always think it best to separate the residential market into two factions - homeowners and investors. Although there can be significant overlap, the economic impact on each is very different. As you pointed out, the high activity in 2021 could very well be a "pull forward" of sales that should have normally taken place in 2022. However I think the frosting on the market is more relative to cost to carry tripling because of interest rate increases. The headwind is how our central bank is viewing the pace of inflation. For a while they tried to hide under cover of inflation being transitory. After months flowing into years, that BS was soon abandoned. Now the central bank is under fire to hold inflation back which is done through higher interest rates. However, this also has the effect of freezing out buyers as they loose affordability. I hear the call of 500k of immigrants coming to canada. This is where my bifurcation of the real estate market into two factions comes in to play. Immigrants, typically rent until they can create credit and raise equity to acquire. The bulk of those new immigrants will put significant upward pressure on rental rates thereby improving values for the landlord class. With affordability locked in the rear view mirror, there is a huge wave of permanent renters that need places to live. I think that residential markets will continue to see downward pressure, while investment real estate will enjoy climbing valuations. 

There is a lot more to the market than this, but these are my thoughts.

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