Toronto’s June transaction volume was 37% lower than June 2021.  While prices were higher by 7% compared to last year, the month-on-month prices have been slipping.  Part of this is due to seasonality as June prices are typically lower than May but the increase in interest rates (combined with food and energy prices) is making affordability more difficult  – leading many buyers to take pause.  As a result, the market has shifted away from a seller’s market as the current inventory level is more than 2.5 months providing buyers more choice compared to less than a month of inventory earlier this year.

Higher interest rates will hit both investor and end user markets although I think it will hit investors more since they don’t get the utility of living in the property.  Even if you’re planning to live in the property, I’ve always advised buyers that they need to have a minimum 5-year time horizon.  Otherwise, it may be better off to rent as they may not have enough time to ride out downturns.

Home buyers who purchased properties at in Q1 won’t feel good about seeing lower prices with some feeling that they’ve lost money.  However, those buyers haven’t actually lost anything unless they need to sell now.  The same analogy goes for the equity markets.  The TSX and S&P have dropped by over 11% and 25%, respectively since the beginning of the year, but there’s no actual loss if investors can wait it out. 

With most homeowners staying in their property around 10 years, that’s a long runway for prices to rebound.  All the while, they are living and paying down their home.  (I just put a reminder in my July 2027 calendar to check back to compare with July 2022 prices).

The following are bearish scenarios for a buyer with 20% down payment for the average Toronto property currently on the sidelines waiting for prices to drop as interest rates increase.

Scenario 1 shows a 15% decrease in prices and interest rates at 6.3% which is a more realistic example of what could conservatively happen. In scenario 2 (a more extreme example), prices drop by 30% as rates rise to 7%, the monthly difference in mortgage payments is an increase of $1,172/month (~$14,062/yr) which is about what a basement apartment could lease for. If the buyer is renting a one-bedroom condo for about $2,000/month, they could be better off buying.

In summary, it’s impossible to time the market but the numbers show that it can be worthwhile moving off the sidelines depending on a buyer’s current cost of housing. I’d love to hear your feedback on these scenarios or thoughts on where you think the market is going.

Shen Shoots the Breeze

I just returned from a short trip to New York City with my nieces and nephews. My niece was admitted to a summer program at School of American Ballet (SAB) but had a fracture in her foot so had to pull out. Everyone was bummed for her but we decided to make lemonade out of lemons and explore the city.

I thought exploring Manhattan with 4 kids in tow would be easy as the youngest is already 9 years old and the eldest is going to grade 12.  I was really happy that their mother was able join last minute.

Here are some tips if you’re going to NYC with kids (pre-teen/teenagers) in tow:

1. With Pearson experiencing major delays, I opted to fly on Porter Airlines through Billy Bishop Airport which was smooth.  I was at the gate in 15 minutes. Upon my return, I got through in about the same time which included picking up my suitcase at the baggage carousel.
2. Porter lands into Newark Airport. It may be easiest to take a taxi or hire a car to get in depending on the size of your travel group. Since I was travelling alone and meeting the family at Penn Station, I opted to take the New Jersey train into Penn Station. It cost an adult US$15.50 one way and the trip takes about 27 min and comes about every 30 minutes. Look up the schedule in advance on your return back to the airport as I cut it close and arrived less than an hour before my scheduled flight (yikes!). Thank goodness for TSA pre check!
3. If you’re opting to take public transit (which I would suggest), get a Metro Card ($1/card). We were staying for 4 days so we decided to do the 7-day weekly pass at $33/card – if you use it more than 12 times during the week, it’s worth your while. The 9-year old got to travel for free as she was under 44 inches tall.
4. Depending on one’s interests, NYC has a ton of museums covering vast interests. This site shares when admission is free or discounted. Our group arrived at the Museum of Natural History an hour before closing and it was free admission. One of the things we did visited on the weekend was the Statue of Liberty and Ellis Island tour at $24.50/pp for the Pedestal Reserve ticket. Check out this blog if you want tip on how to navigate the islands. My tip: bring water/snacks unless you want to overpay for subpar food on the ferry or island.
5. If you have some restaurants you’d like to check out, I suggest making reservations especially if you’re a larger group. Dining out can get super busy especially on the weekends.
6. Think of some activities you want to do when it’s especially hot or rainy. We went to Hudson Yards for some retail therapy and also hit up the Museum of Food and Drink as it was a quiet and small space to defrag from the hustle and bustle of the city. Chelsea Market is also great for escaping uncomfortable weather and has great shops and eateries.
7. Take it easy – taking transit, possibly dealing with hot weather and large crowds can easily tire the most energetic of the group. You will not be able to cover all that NYC on one trip. I’ve been there about 10 times since 2011 and I’m still discovering new things about the city.
8. Finally, if you can afford the vacation days, take an extra day to recover upon your return. I found out my nephew took a nap from 4:30pm on the day he returned until 8am the next day.