The market is on FIRE right now. At the time of writing this Insight Article (which is exactly Tuesday, February 4th, 2020 at 5:20 pm), there is this uneasy feeling that I’m getting which is highly reminiscent of April 2017. In case you forgot, April 2017 was basically the peak of the market in 2017 before the Liberal party’s Fair Housing Initiative was implemented. In the months leading up to April 2017, we were seeing record increases in year-over-year prices, that is, 20%, 30%, and as ridiculous as 35%. Of course, we all know what happened after that – the housing market cooled, specifically the freehold market.
Stats Tell the Story – As at the time of writing this, the stats for January 2020 haven’t come out yet but I think we’re going to see some freaky numbers that we haven’t seen in a while. Back in December, I recorded a market watch video about what really happened in December 2019. I alluded to December being a rare statistic where there were more sales than listings, which we only saw in the months leading up to April 2017. I said that I wouldn’t worry too much about this statistic as December was an anomaly because it was December after all and people are on holidays more than anything. However, I was hoping to see some more inventory in January. Well, January came and went, but it still feels like December as we didn’t get enough listings. I’ve been part of offer situations on both sides with 10+ offers. I’m also hearing other colleagues and their listings presentation dates with 10+ offers. What’s even more ridiculous is the small detached house in Brampton that received 77 offers – that’s not a typo! Good grief, does this remind you of April 2017 or what?!
Market Trust Issues – I tell you all of this because the way that a property is sold in a buyer’s market and the way that a property is sold in a seller’s market are two totally different things. The way you sell a condo is also different from the way in which you sell a detached home. The selling strategy is also different for different neighbourhoods. All of this is important because you need to know to NOT TRUST THE LIST PRICE. This point is especially important in this current market where there are clearly more buyers than there are sellers. In the right area with the right property, you can simply just under-price the property to get 20+ showings in a weekend and hold offers to see who comes with the highest price.
For example, that 500 SQFT, 1-bedroom condo with a beautiful view and functional space that is listed for $499,000? Yeah… it’s not selling for anything less than that in the downtown core. If it sounds too good to be true, then it’s probably not true.
I pulled up the last 193 transactions in the downtown core under the $800,000 price point and the average sold price percentage was 104% (above the list price). Take a look at the stats below:
This is Reality – Based on the above analysis, that means your average property sold for 104% over asking. This is a combination of agents who understand how hot the market is right now and are listing the property at a price point that is lower than what it’s worth, and the fact that there are evidently more buyers than sellers right now. This is the current market condition we are in; it’s reality.
If I filter the chart above to only factor in properties under $600,000, the average becomes 106%. This goes to show that the affordable properties are the ones that are highly sought after right now. On the other hand, the properties over $1.5M are not moving because they are not within reach for many people. So despite the stress test being around for about 2 years now, most people are still limited by what they are able to afford (which is usually 5 times their gross income). This means that a couple making $60K each, or $120K in total, can afford that $600K condo ($600K / 5 = $120K) – this is the space that they would be competing in. Many Torontonians fall in and around this category. When you get to the $1.5M house, you’re really looking at the people who earn over $300K income to even qualify for that kind of house – they exist but are more rare.
Calling in the Experts – So this whole idea of not trusting the list price is true and it really should be normal practice in order to avoid disappointment. So whether you buy or sell, you need a good agent who understands the market. You don’t want to buy with an agent who doesn’t know the market because you’ll never win the bid. You don’t want to sell with an agent who doesn’t know the market because you’ll leave money on the table. An agent who knows what they are doing is imperative especially during market conditions like this. We have highly qualified agents on our team, so if you’re in need of some expert advice, then send me an email at Zhen@PrimePropertiesTO.com and let me know what you are trying to accomplish so that we can put a personalized plan in place for you accordingly.
As this market becomes tighter and treads towards being a super strong seller’s market (circa 2017), get ready to see more agents utilize the under-pricing strategy more often. This will only push the market prices higher and higher. In January 2020 alone, there was a bachelors unit in the downtown core that sold for $1,700 per square foot and a 1-bedroom that sold for $1,300 per square foot. The following chart illustrates where we stand in the downtown entertainment district as of February 4th, 2020.
The Wrap – With confidence, I predicted that we’ll hit $1,100 per square foot by the end of 2020, but it seems like we’re already here and have even passed that mark for the 1-bedroom units. I worry that we won’t get more listings in the coming months and we’re really going to be screwed. But until that happens, I pray with optimism that we do because as much as I would like our real estate prices to go up for personal reasons, this type of growth and lack of supply really isn’t the most ideal situation for sustainable growth. Like I said before, I prefer consistent annual growth rather than spikes. Here’s to a more balanced month of February, but if not – get ready, we’re going to see some craziness upon us!