The Current State of the Real Estate Market in Toronto
Even if many are still haunted by what happened in the USA almost a decade ago when the real estate bubble exploded causing global consequences also known as the global financial crisis of 2008, it does not mean that Canada is on its way to repeat the US pattern leaving 6 millions of USA citizens without their savings and causing an economic downfall domino effect almost worldwide. Even if Home Capital Group Inc. faced some serious issues earlier this year, the Canadian real estate market is still stable.
Regarding Toronto, the situation is similar as in the rest of Canada, including the drop in home sales since May 2017 that caused panic among home buyers and sellers, but a collapse is far-fetched at this point even if many news headlines claimed the opposite.
It is true that Toronto home prices have been growing at a slower rate since May this year and they fell by 16% compared to last year. This led many to believe that the market is going down in addition to the liquidity problems of Home Capital Group that resulted in withdrawal of money and savings as soon as the biggest Canadian mortgage non-banking lender announced that they need a backup of C$2 billion. Nevertheless, real estate remains one of Toronto’s major economic growth drivers, and it is highly unlikely to collapse.
What Exactly Led to Home Capital’s Demise and the Post-Crisis Recovery
After the mini-real estate crisis in May, Toronto is looking at great prospects for the future given that Home Capital is on a good path of recovery as they implemented measures to keep their liquidity intact. What exactly happened with the mortgage lender? After they had sought a C$ 2 billion loan to keep up with their payment obligations and to prevent a chain reaction in the market, many interpreted it as a red flag which resulted in a drop of Home Capital shares and further withdrawal of savings. The thing is that Home Capital reacted on time and responsibly approached the lack of funds, and we simply have to give them credit for that. In the meantime, Home Capital managed to secure the necessary funds to pay their debts and mortgage commitments.
The biggest non-banking mortgage lender was not directly responsible for the mortgage drama, but rather a small number of their broker partners who tried to secure a profit on fraudulent loans. The subsequent OSC investigations hampered Home Trust to finance mortgages which caused a whirlwind in the real estate market.
Nevertheless, though, we have to face the fact that it would take its toll on the real estate buyers and sellers if Home Capital was about to drown, especially because they hold more than 1% of the total mortgages funded in the non-banking sector. Unable to renew their mortgages, many people would be forced to sell their homes, but it would take a lot more to take down the Toronto real estate market.
How Does The Market Reflect on Sellers and Buyers?
The market experienced a slight change after the issues in May as more homes are found on the sales list currently, i.e. listings increased by 73%, while sales dropped by 26%. Still, even if this statistics looks harsh, prices are still steady in Toronto, especially since buyers were able to get a better bargain than they hoped for earlier this year, according to analyses from the First Quarter. The increased number of listings offers more variety to the buyer, but we have to admit that it reduces the profit odds for sellers. The sellers’ best friend, currently, is time, which means that they should not rush into unfavorable deals just because they think they won’t be able to sell. Remember, time is your friend. They should not expect to land dream deals overnight, but they may count on good deals if they set realistic asking prices. The situation may not be as glorious as at the beginning of the year, but the prices are still pretty high and stable.
As for buyers, they should make sure to follow the updates on the listings which gains them an advantage over competitors.
Also, keep in mind that Canada’s banks operate under very strict regulations,which automatically means that a Canadian market crash is highly unlikely.
Despite amended mortgage regulations and possibly higher interest rates, the Toronto real estate market is expected to grow by the year’s end, especially because the market is balanced. It is more about balance than anything else. Rises and drops in prices are perfectly natural, and the supply-demand chain is still within the normal.