For all the talk of the role that interest rates play in real estate — and make no mistake, rates absolutely rule the day — I am of the firm belief there is absolutely no market force quite as powerful as that of consumer sentiment.
As rates ticked up and affordability trended down we, unsurprisingly, saw buyer activity grind to a halt.
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Buyers, clearly worried about catching falling knives, retreated to the sidelines and new listings dropped off, in many cases leaving what did come to market to languish on the vine. For quite a while now the safe assumption has been that the only people selling are those who absolutely have to.
And thus far the market has not been kind to the sellers who need to sell. We have seen tremendous year-over-year declines in some areas.
We are in the throes of the fastest rate hiking cycle since the 1980s. Even though everyone should have known that rates could only go up, no one ever imagined they would go this high, this quickly — everyone has whiplash.
From there the chess board locked up. If sellers aren’t selling, buyers can’t be buying, even if they can or if they want to. With minimal activity, particularly in central Toronto, prices haven’t come down sufficiently to offset the rise in borrowing costs.
Lots of conclusions have been drawn about what this means for the real estate market. The bears are firmly entrenched in their belief that it only gets worse from here, and any attempt to suggest otherwise is a dubious narrative being pushed by people with something to sell.
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But we know that even in times of economic uncertainty life goes on. Families form, expand, come apart. Demand pents up.
Which is probably why I have been hearing chatter among my colleagues that things are waking back up again. Clients who have been in the wind through the fall and early winter are now reappearing. Open houses have lines and, shockingly, multiple offers have returned.
On an egregiously underlisted property that shouldn’t be surprising — all strategies available are currently being employed to help sellers move their product — but it’s not just the underpriced with such activity. I can think of three fairly-priced properties just last week in midtown that had multiple offers and sold somewhere between 3% and 7% over list.
The question is why. And the answer, I believe, is that sentiment has improved
Last week as Tiff Macklem, Governor of the Bank of Canada, announced a further increase of 25 basis points, he signaled in his remarks that the hiking cycle may be nearing an end. Perhaps that is all the marketplace needed to hear in order to feel the worst is behind us. After the rollercoaster of the past few years, stability sounds pretty good.
The bond markets reacted almost immediately and we saw the rates on five-year fixed mortgages come down. A number of the mortgage professionals I spoke with now sound cautiously optimistic.
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Yes, all of this is anecdotal. But anecdotal is often all we have as we wait to see trends born out in data. It’s usually a good idea to pay attention to signs of shifts in consumer sentiment.
And the thing we should have learned about sentiment by this point is that it often defies reason. Sometimes those of us on the ground can note discernible shifts that will still take months to see supported by stats.
Trends may be subtle but they almost always start off as tenuous and anecdotal. Even if they ultimately fizzle out, they’re there if you’re paying attention. And sometimes there is absolutely nothing to support the why.
The sales metrics for January 2023 are absolutely abysmal. We had fewer transactions than during the early days of the pandemic lockdown. According to TRREB data, January reported a 45% decline in transaction volume over last year while prices came down a full 16%
There is no good reason that my phone is now ringing with clients wondering if it’s time to jump back in again. Affordability is horrendous.
But if the sidelines are full of people attempting to time the bottom, it sure seems that consensus is starting to form that the bottom may be here.
@brynnlackie
