You have to look long and hard to find a Toronto real estate agent who will use the dreaded “recession” word. You’re more likely to hear “balanced market,” “temporary blip,” or “predictable correction.” None of these are technically accurate (unless you predicted a global pandemic leading to inflation, which, in turn, causes interest rake hikes, in which case, “predictable correction” is accurate.) A balanced market is a myth, and a temporary blip doesn’t consider all the external global factors in the real estate market.
Now that prices are going down, you’d think we have a run on buying, but we don’t. Consumer confidence is low, and those who still want to buy into the market have slashed their budgets significantly due to the higher interest rates. But is this smart? Unlike other investments, real estate serves a practical function. The sole purpose of investing in the stock market is to make money.
Real estate is different because you need a place to live. As I’ve often said, real estate shouldn’t be a get-rich-quick scheme. Real estate is a practical purchase, which, in Toronto, generates a fair amount of year-over-year value appreciation. The statistics we often hear about the market being down 15% is an aggregate of all of the GTA. This is generally an accurate number if you take properties that sold at the beginning of 2022.
However, on a year-over-year basis, the statistics show a different story. According to the Toronto Real Estate Board market watch report for October 2022, the house values in W01, which includes Roncesvalles, High Park-Swansea, and Parkdale, have gone up by 3.85% since October 2021. In W02, which includes Junction, Wallace-Emerson, and Bloor West neighbourhoods, values have decreased by only 3.10% since October 2021. These statistics hold steady for most of the downtown neighbourhoods. These price corrections hardly tell a story of gloom and doom. Toronto is a solid market that is experiencing a correction. Prices will likely continue to decline as Canada heads into a recession in 2023, but we can’t predict by how much.
Therefore, you should buy a house in a recession. We are in the market downturn that hesitant buyers have been waiting for. If you’ve been waiting to buy low, this is your chance. With that being said, here are some pointers for buying a house in a recession:
Hoping to buy a home soon? You’ll need to consider the process of obtaining financing for your purchase. To learn more, check out these helpful blog posts.
- What’s the Difference Between a Mortgage Broker and a Bank?
- What Buyers Should Know About Mortgage Appraisals
- Should You Get Pre-Approved For a Mortgage?
By Within Your Means
This is not the time to over-leverage yourself. Buy a house using as much cash as you can. And make sure that you’ll still be able to pay the mortgage if rates continue to go up.
Buy a Fixer-Upper
Most buyers no longer have cash left over after their home purchase. Therefore, they tend to be buying up renovated homes. The value spread between fixer-uppers and liveable homes is growing more significant than in the past. If you are handy, or if you can live in a dated home, you will save a lot of money by having a smaller mortgage.
Focus on the Monthly Payments – Not the Value
You may buy a house, and then the values drop slightly more. That’s a tough pill to swallow. However, it shouldn’t deter you from buying a house. We can’t predict when we’re at the bottom of the market, so it would be difficult to time your purchase at the bottom. Ultimately, the only value that matters is the value of your house when you want to sell it.
Need more information about market fluctuations and property values in Toronto? We have some blog posts that may be of help!
- Are Roncesvalles Homes Holding Their Values?
- Why Does the Market Have More Terminated Than Sold Listings?
Buy a House You Like
This seems obvious, but it’s not. When values were racing upward, buyers often jumped into a house they didn’t love just to be in the market. Financially, this made a lot of sense at the time. However, now you are no longer chasing the market, and you may need to live in the house you buy for five to ten years before you realize a profit.
Yes, we are almost certainly headed into a recession. If you need a place to live, and as long as you can afford the monthly payments, you shouldn’t let this deter you from buying a house. The fundamentals of the Toronto market are stable.
If you’re looking to buy real estate during a recession, working with a local real estate agent is your best strategy for success. Learn how we help buyers accomplish their goals by calling 416-788-1823 or emailing [email protected] today!
The Kim Kehoe Team