The Toronto real estate market is out of control. In the last month, the average PSF for the City of Toronto has risen from $592 to $620* based on recent sales. We are seeing final sale prices coming in with a $125k difference between the winning bid and the next best offer, which is crazy. Toronto is a blind market and something needs to be done.
What we need most of all is more transparency. Canada’s current privacy laws are keeping buyers in the dark. When faced with a multiple-bidding situation, buyers naturally have to bid above asking. But when buyers have little information about competing offers, you wind up with massively inflated bids that are making it difficult for many people, especially first-time buyers, to purchase condos in Toronto.
How to Improve Transparency in Canadian Real Estate
We believe that increased accessibility to market analytics for buyers and sellers is the best available method to improve transparency in Canadian real estate. Our PSF Index and Full Market Report, which we’ve developed over the last five years, is an excellent source for active market indicators, historical price trends, and a big picture view to compare condos for sale in Toronto. Unless Canada reforms it’s real estate practices, buyers and sellers will need as much information as possible to navigate the market clearly.
In Australia, for comparison, the whole bidding process is different. It works much like an open auction, held out on the street in front of the property on a designated day. All prospective buyers gather around and yell out their offers, loud and clear for all other buyers to hear and make counter-offers, until the listing agent yells, “Sold!”
Canadians might be too nice for that in-your-face method, but it does create higher transparency. According to the JLL Global Real Estate Transparency Index 2016, Canada ranks as the 3rd Highly Transparent market among 109 countries, following only Australia and the United Kingdom. Although 3rd place is decent, it still leaves much room for improvement.
Combined with more market information and analysis, our best tactic at this time may be patience. Last year, we saw the federal government implement mortgage ‘stress-testing’ measures in attempts to cool the Canadian market. A few months before that, the B.C. government introduced a 15% tax on all foreign buyer transactions. Heavily controversial, the B.C. foreign buyer tax has indeed helped to cool Vancouver’s over-heated housing market, and we think a similar tax could be coming to Ontario.
Based on data from the MLS Home Price Index, BMO Financial Group released a study that shows the price corrections occurring in Metro Vancouver are largely due to the foreign buyer tax. Whereas all Canadian cities were subject to the federal government’s 2016 mortgage stress-testing measures, only Metro Vancouver experienced a decrease in home sales and prices. But Toronto’s current craze cannot be directly connected to foreign buyers. Just because foreign investment has decreased in Vancouver does not mean it has all transferred to Toronto. As Condos.ca Partner and VP of Sales Andrew Harrild recently explained in a Toronto Star article, most of the foreign buyers he deals with are end-users, particularly students whose parents have financed the purchase of their condo in Toronto.
A foreign buyer tax is only a partial solution, but it could potentially alleviate the pressure on prices by reducing the purchasing power of international speculators.
What To Do While We Wait
It may be that Torontonians simply must accept that our beloved city has entered the world-class real estate market and prices are rising accordingly. Toronto is a lovely place to live, work, and play – not to mention raise a family, settle down, and eventually retire.
So, even though Toronto’s real estate is heating up, the best time to buy is still right NOW. For young buyers, getting into the market in some way should always be the main goal. If all other buyers are blind, then the best strategy for success is to be insightful, which means arming yourself with all available information.
* February 6, 2017 average PSF was $592, February 28, 2017 average PSF was $620.