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Ask an Expert: How to Navigate the Real Estate Market

Navigating Toronto’s residential real estate market is a tough task on a good day, let alone when bidding wars are taking buyers out altogether. But with a little fortitude, success can be a reality for those looking to get into the market. It’s just a matter of getting the right person to help you out.

Who: Maureen O’Neill, Managing Broker, Sotheby’s International Realty Canada

THE MARKET

Are we in a real estate bubble, or is the marketplace a realistic reflection of what to expect?

I don’t think we are in a bubble at all. I think what we are in is a tremendous growth period with a lot of good, stable factors available. We’re the number one most desirable city in the world to live in. If it is a bubble, it’s an awfully long one. It started fifteen years ago and other than a little blip in 2008, it’s trended up all the way.

What factors have contributed to marketplace growth over the past few years?

We’ve had low bank interest rates historically and low inflation. We’ve also had healthy immigration to Canada, and most of them are coming to Toronto. The unemployment rate is steady and the affordability chart that we keep, which is very accurate, still says that although our prices are high, people are still able to afford it.

Are these factors sustainable?

One of the things that is sustainable is, of course, immigration. I also believe from every indication that we’ve seen that interest rates aren’t going anywhere. They may come up a couple points, but for the next five years they look like they’re going to be very desirable. Another thing is that we’re seeing this huge transfer of wealth coming down from the baby boomers with their grandchildren getting these tremendous inheritances.

Are there any areas where good deals still exist in Toronto or are those day long gone?

Certainly, everything has been explored. And there’s always different pockets that all of a sudden become very trendy. For instance, Mimico is becoming very trendy where it never was before. In terms of getting a deal, it depends on how you want to describe what that is. Things are going for market value for sure. It’s very hard to get something under that, though. However, there are cases where places really need to get fixed up and you can get it lower than market value.

How does a neighborhood become “trendy” in real estate?

It’s funny because all of a sudden you’ll see a lot of interest in an area, and once that’s there the prices go up. What we have here are the millennials who are buying, and generation X and Y. They aren’t content to go to the north parts of Rosedale or Forest Hill. They want to move into hip and trendy areas. We always say that when you see a Starbucks on a corner, you know that real estate values are going to go up.

Image credit: Andy Taylor, “Sotheby’s International Realty Canada”

Image credit: Andy Taylor, “Sotheby’s International Realty Canada”

Do you feel like the new Canada Mortgage and House Corporation (CMHC) rules are going to slow the market down?

The new CMHC rules really only affect a small fraction of the buying public. I don’t think it will slow the market down. The bidding wars are strictly a result of a supply and demand situation. There is no inventory. You get ten buyers for every one house that comes out. Once we get more merchandise, we will definitely even out the bidding situation. I think prices are still going to remain high because of the value of Toronto, but in terms of bidding wars, I do think they’re going to fade out over time as we get more product on the market.

THE BUYERS AND SELLERS

What kind of expectations need to be set for buyers when they’re getting into the market?

As buyers, they really have to lower their expectations with a view of moving up in the future. Everyone wants the urban centre. Nobody wants to sacrifice. Everyone tunes into HGTV and all those things that make it very desirable. But there’s a price tag to pay for that. The buyers today have to have a realistic expectation for what they can get for their budget. They have to prepare to cast a bigger net. If they can’t get into the urban centre right away, buyers have to go further east, west or north with a view of getting equity on their place and then come back to Toronto.

How have those expectations changed over the years?

I’ve been in the business for 30 years. Buyers, you could satisfy them. They wanted a home and an area that they could live in, and were quite prepared to make the necessary sacrifices. Now, that has all changed. And the same goes for the sellers. Sellers have an inflated opinion of what their house is worth because they’ve seen all the press about the real estate market. Even though we show them what the market will bring them, they still think that they can get more. So their expectations are off the chart as well.

How has the process changed?

Real estate has always been a long term investment. It doesn’t matter if we’re in a good or bad market. You have to buy real estate with a long term view. Before, I think it was much easier to buy real estate and sell it for a profit. But with land prices the way they are today, you’re not going to make a profit within the first couple years.

There is a constant discussion about how Toronto’s real estate market is growing. What do you think is so unique about it?

I think consumer confidence is one thing. I’ve been in many markets where once the consumer loses the confidence, it doesn’t matter how good the market is. Also, we have really stringent regulations in place right now. The banks are really strict about their lending policies, and the government has a lot of rules and regulations that people have to abide by. I think that all contributes to it.

Image credit: Linda Chu, Lisa-Marie Doorey, “Sotheby’s International Realty Canada” 

Image credit: Linda Chu, Lisa-Marie Doorey, “Sotheby’s International Realty Canada” 

What are you looking forward to seeing in the real estate market?

What excites me about real estate is the real estate, in and of itself. I believe that it’s a Canadian dream. I believe that people still want to own a piece of real estate. And at this point in time, people are still able to get into the market and own a piece of real estate and build their equity. It excites me because the buyers are different too. You have a lot of single people buying, whereas they used to wait until they were married. People are buying because real estate gives them empowerment once they have a financial foothold.

AGENCY AND BROKERAGES

Does the MLS system effectively serve both brokers and consumers equally, or do you envision any changes?

Changes are inevitable. When you go back to how real estate started even 20 years ago, we didn’t have the technology and social media that we have today. Now, we can send out prospect matches to all our clients and keep them informed as properties come up. I believe the consumer and realtor have a very equal role because everything is in the MLS system now.

Is the current market efficient?

Right now, there are more options available for consumers than ever before. You have Realtor.ca, the MLS system, the individual broker websites, as well as the agent websites. So, you’ve got a very informed public that does most of its research before calling a realtor. Once they do that, we get into the advisory and negotiation rules with them, which is really important because a lot of people have this Do-It-Yourself mentality. Realtors serve a much more important role providing advice and counsel. I believe it’s never going to get to a point where a consumer will see a picture of a home and click to enter their card. We will always be needed for expert advice. It’s far too important to get wrong.