Market Report: August 2009
We’re currently in quite an interesting place in terms of the residential real estate market in Toronto. After carefully going over ‘the numbers’ this week, one thing stands out immediately: the next 4-8 weeks will be an amazing time to sell single-family homes.
If you pay attention to mortgage rates at all, and use a touch of common sense, you’ll already understand why. As we all know, over the past several months, mortgage rates have been at an all-time low. In May and June, a prudent home buyer in Toronto could secure a 3.59% mortgage on a ’5-year fixed’ plan from a conventional lender. Exciting! Recently and inevitably, though, rates have begun to inch back upward, which is having quite an interesting effect on the market as a whole. This is due to the enormous group of potential buyers in Toronto who have the old (May/June) rates being ‘held’ by their lending institution on 90-120 day guarantees. These banks will honour the low rate – if the buyer secures a purchase and resulting mortgage within the allotted time frame.
So, why does this matter? Normally, it wouldn’t have such significance, but when combined with the historically low number of active listings (houses for sale) in the Toronto market, it has the potential to cause an amazing temporary inflationary effect on prices. In July, there were 16,915 active listings in Toronto – down nearly 10,000 from 26,543 in the year previous. One may be inclined to infer that this is representative of a ‘slow market’ overall, but this is clearly not the case. Actual sales were up over the same span: 9,967 single-family homes changed hands versus 7,806 in 2008. What we’re therefore seeing is a healthy market with a relatively low number of sellers, and because of the rush to ‘lock-in’ guaranteed mortgage rates, a particularly hungry group of buyers.
The rest is academic. If the buyers are motivated, and there are many more of them than sellers, then prices will invariably go up. This is the reason that we are seeing so many multiple-buyer offer situations develop currently when attractive new listings come on the market – a seller’s dream! In short, it could be a great time to sell.
The strongest effect of this phenomenon will likely only be felt for the next 4-8 weeks, after which the mortgage guarantees will wear out, and the hot fall real estate season will usher back in many more sellers, balancing the market. If a person were inclined toward selling, though, market evidence and experience suggest that now might be a great time to list your home!
As always, if you have any questions about market trends, feel free to drop me a line. I answer all of my emails personally.
Until next time,
Shaun Nilsson
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