2022 Real Estate market update and Spring forecast
Why is it so hard to predict this residential real estate market? From Bidding wars to lockdowns – these past 2 years have resulted in an unpredictable real estate roller coaster!
Heading into March of 2020 it did seem like the market was going to stabilize. After recovering from a big market correction in 2017 it felt like the market was back – Buyer confidence was high and Sale to List Ratio was increasing. Then came Covid-19…
Covid-19’s effect on our local Real Estate market has been well documented on this blog in the past, but for a quick recap:
2020 – Market quick review
- For much of 2020 mid to upper price range homes just didn’t come on the market as sellers were reluctant to give up their detached homes with land to downsize in the middle of a global pandemic
- When you looked at realtor.ca you would see very few listings (due to the low number of new listings)
- Buyer demand grew and grew as people looked to move into homes with more space and move from Toronto to more affordable communities (like Hamilton and Burlington)
With a very limited amount of new listing coming on the market and high buyer demand – prices started to skyrocket (and haven’t stopped)
- Buyers had little choice but to pay very high premiums (above objective property value)
- Nobody, I mean NOBODY predicted during that first lock down that prices were going to rise like they did for 2020 and 2021 – average home price up 26.8% (January 2022)
2021 – Market quick review
- For the beginning of 2021 active listing inventory continued to be quite low
- The number of new listings was in reality quite high (setting records for most months)
- The number of sales was at a near all-time high (setting records for most months)
- The net result to the casual observer when the checked realtor.ca there was a low amount of listings
- it is important to confirm this was not because of a lack of new listings, it was because the record number of home sales was keeping pace with the record number of new listings.
- Buyers continued to pay very high premiums (above objective property values)
- In March of 2021 it felt like a shift was coming – but subsequent lockdowns gave some sellers pause and buyer demand was still strong enough to sustain this very heavy Seller’s market.
2022 – Early 2022 real estate market observations
- 2022 began much the way 2021 ended. A lower, but consistent number of listings and high buyer demand.
- Buyers who just watched properties go up by another 25% (2020-2021) were starting to get concerned that they were going to be priced out of the market.
- Buyers continued to pay very high prices, often much higher than the objective value of the home.
- But something felt off…
- Experienced, high volume and active agents have been concerned for a few months with the market.
- It feels at times like we are straying close to the edge
- The concern is that if this market shifts, it will shift quickly, and buyers and sellers can be caught in the middle.
- While the adage that “something is worth what someone will pay for it” does technically hold true… at a certain point we need to acknowledge that the prices we are seeing are not to be taken for granted. They do not feel sustainable.
The market is NOT collapsing
Before I go any further, while there is genuine concern, this is not a “bubble bursting” story I am telling.
- It is important to understand the difference between SUBJECTIVE and OBJECTIVE value.
- SUBJECTIVE value – is what any buyer is willing to pay for any given property
- OBJECTIVE value – is a value derived from various attributes of the subject property, of the location and of the current market conditions.
- The “SHIFT” or “CORRECTION” that I keep referring to will result in a decrease in some of these very high SUBJECTIVE premiums buyers are paying.
There is still cause for concern.
- While we are not anticipating a market crash the correction can have long standing implications.
- New buyers entering the market now can already sense something is different.
- While multiple offers are still happening every day, the days of 40-50 offers on a property are gone.
- Listing strategies are changing (or need to change)
- Expectations of Sellers need to are very high and need to be managed with honesty and integrity by their Realtors
- If the market shifts and Sellers who have purchased a home and paid a very high (SUBJECTIVE) premium could find themselves in a shortfall between what they were hoping (expecting) to sell for and what they actually sell for.
What does the shift look like?
- At the time of writing this blog, in the past 30 days there have been 212 canceled listings, 154 of those were canceled after just 2 weeks on the market, 44 of those in the past 7 days.
- The vast majority of these are properties that listed at a low price, held offers and either didn’t receive an offer at the price they wanted or in some cases, didn’t receive an offer at all…
- As these homes cancel and “Re-List” they come back on the market at prices more in line with their OBJECTIVE value
- The market will start to balance
What does this market mean for a Seller?
- Can you still under price and get multiple offers? Yes.
- The strategy of underpricing and holding offers has a history of working fantastically well for Sellers… until it doesn’t. And then it stops working completely.
- Whether this strategy will work depends on a lot of factors
- Using an experienced and high volume Realtor such as myself will make sure you have the most up to date information to make the most informed decision about the best strategy for your property.
What does this mean for a Buyer?
- There will be more choices out there
- Homes are already starting to sell for closer to OBJECTIVE value
- Some homes are even selling with conditions of financing and inspection
- Buyers are seeing an increase in active listing inventory (for the first time in 2 years)
- You need a partner you can trust. Someone that knows the market and help guide you through these changing times.
My advice for you
- Stay in the loop. It is true what they say, knowledge is power. And the more you know about your location Real Estate Market and understand the why behind those headlines, the better equipped you’ll be when it is time for you to act.
- Just call me – lets chat – no pressure. We move at your pace and comfort level, as we navigate this crazy market during these crazy tim
- We have the inside information. We make it our business to know this business.
- Let us guide you through this, by your side, as your partner.
- This market is changing SO fast. It is never too early to start a conversation. Never any pressure – we will go at your pace
- Stay positive – things do have a way of working out for the best.
- Establish your real estate goals. Understand why you’re purchasing or why you’re selling
- If you’re a Buyer:
- And you are looking for a ‘forever’ home, paying a subjective price (without over-extending) may just work itself out in the long run.
- Do not lose sight of the fact that you are buying a home – and there is value in that.
- By caring for and nurturing your home, your investment will grow and appreciate.
- While purchasing is an investment property the numbers matter – especially while we are on the cusp of a potential significant change in the market
- As an investor looking for an income property you may need to think a little more objectively and proceed with a more measured amount of caution.
- If you’re a Seller:
- remember it is difficult to price your property based on subjective value.
- When a house sells in a multiple offer situation, the general public only sees the accepted selling price, the top offer.
- What they don’t see are the offers in between.
- Careful thought and consideration has to be put into EVERY listing.
- As an active Listing Agent I see the range of offers that come in on a property from top to bottom.
- The reality is that the majority of the offers are closer to the asking price or clustered somewhere in the middle.
- More often than not you get that one or maybe two Buyers that REALLY want it. Their subjective value outweighs that of their competition and they win the sale.
- All it takes is that one Buyer to drive the price – but you need to know the whole story
Call / text / reach out anytime!