Will the spring housing market in Toronto slow down? Pandemic, Bidding Wars and an Overheated Market
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In case any of you reading this blog have been sleeping for the last couple of months, living under a rock or in some other way not hearing the news, the Toronto Housing market remains strong, and will likely continue to rise. Crazy times, Crazier Market; welcome to Spring 2021. Every time I open the paper or turn on the TV or computer I am bombarded by different “experts” screaming about the real estate market and how prices are out of control with multiple offers or that there is little inventory. Even last Friday’s Globe Opinion piece talked about how prices were up 33% from last year. The fact the writer neglected to mention (a common newspaper fault) was that last April (2020) we were in the first full month of a worldwide pandemic lockdown. Sales were also up 362%! No wonder - no one was buying real estate, especially condos.
Included with these articles about the “out of control” Toronto real estate market are questions about the practise of “bidding wars” and the fact that they are closed bids. In other words, buyers who offer on a property and find themselves in competition are asked to bid without knowing what the other bids are. This can lead to accusations of overbidding (a winning bid could pay significantly higher than the next best bid without knowing it) or unfair advantages (theoretically an agent can tell someone what someone else bid and thus allow the other party to bid higher). Many groups are referring to the practise in Australia of open bidding auctions as the answer to this problem. Basically, down under, they stand on the street out front of the home and the agent acts as auctioneer and takes bids with the highest bid winning. The home has been on the market for a few weeks so all interested parties can do their due diligence (home inspection, financing, etc). They must have their deposit cheque registered and then the fun begins. As Louis Vachon, National Bank CEO, said after his annual meeting recently in reference to open bids “I think it needs to be discussed. My humble view is in my experience, more price transparency in any market is usually a positive, not a negative”.
I totally agree and would love to have open bidding but a number of issues and questions come up. One of the biggest is that sellers feel that closed or secret bids are better for them (I don’t necessarily agree) and as one buyer of a luxury home said to me “I would love to see open bids when buying but not so much when I am selling” and obviously the seller sets the “rules of engagement” on the sale of their home so it could be hard convincing a seller to have an open bid process. Not to mention the issue of privacy, buyers would now have to publicly disclose their offer or at least their agent would have to disclose the offer. Some of the other challenges are that the offer price is the driver but there are also other elements – deposit, conditions (home inspection, financing), clauses (inclusions and exclusions), closing date, type of buyer (some sellers don’t wish to sell to a builder and have their family home torn down for example). So, it is not cut and dry like purchasing a piece of art off the wall. If you could come to a consensus of these items and publicly disclose the highest price and give others the chance to improve, thus creating a public auction, then it is much more transparent, and everyone theoretically will have a fair chance. However, this will not “slow” down the real estate market, people will still bid up and pay up if they want the property (have you ever been at an auction and watched ego, greed, desire come into play as one bids against another?). Closed bids are just what people are grasping onto as a negative in the buying and selling process.
Transparency and fairness is vital, this is the only way Real Estate professionals can proceed. As with everything in life we must establish balance keeping with privacy of buyers and sellers while also ensuring total fairness.
The more interesting and important fact is that the April 2021 statistics, as were stated earlier, show a huge increase in price and sales from April 2020. The more relevant comparison is the seasonally adjusted statistic (compared to March 2021). April prices were down 3.6% from March and sales were down 19.7%. There was definitely a feeling of things slowing down slightly. Whether this was because of the Federal budget, which came and went with minimal effect to real estate (no change to taxation of principal residence status) or because the wind had just died a bit as any frenzy will lose steam usually as quickly as it starts is anyone’s guess.
This is not to say that it is easy to purchase real estate now and that there are deals galore to be had, the market is still extremely aggressive with many more buyers than sellers.Both parties need to be smart, listen to advice and be sure that their purchase or sale is the “right one.” We are still seeing very strong prices but we are also seeing greed by sellers and/or some sellers over valuing their own property based on sales they see and the overheated market they read about.
I think it will be curious in the coming months what happens, there is still a great deal of uncertainty surrounding the vaccine push for Canadians to still get their first shot (as of a month ago only 20% of Torontonians had had their first shot) let alone their second and also to start lifting some of the shutdowns and quarantines so that we can start to get back to some sort of normal. Will the market settle down in the summer? Will open bidding start to happen in Toronto with rules being laid out as to how to conduct them? Will everyone be able to get back to work and start driving the Canadian economy again? These are questions that we don’t know the answer to and some of this will happen but when is also the question. Either way, the rest of the spring and summer will be interesting and hopefully we all will be able to move forward and be healthy. Stay tuned as it is sure to be interesting.
Joseph Robert
Broker of Record
Cell: (416) 899-6401
Office: (416) 495-3140
Email: joe@glenhomerealestate.com
