What Are the Best Real Estate Investment Deals in Toronto's Buyer's Market?
Introduction
With the spike in bond yields, market uncertainty grows again, and the September real estate data for Toronto is here to confirm it. The data shows that we’re clearly in a strong buyer’s market.
What could this imply for Toronto’s real estate scene? Stick around as we dive into our latest analysis. Don’t miss out, keep watching!
September TRREB Data
Let’s take a look at the latest September TRREB data. As you can see, listings saw a huge spike, up by almost 50%, and sales came down by 7%.
We’ll get a better picture when we stack sales to listings – a higher number means it’s more of a seller’s market, and a lower number means the market favours buyers more.
What we can see here is that the sales-to-new-listings ratio has dipped well below average levels into clear buyer’s market territory. In fact, the sales-to-new-listings ratio hasn’t been this low since the global financial crisis, which definitely sets off alarms.
On the other hand, prices haven’t budged much… yet.
We saw prices come up in the spring and drop a bit over the summer, but for the most part, sellers are still trying to hold out for those higher prices we witnessed from earlier this year. So as a result, prices are still around 10-15% higher than the lows set back between July 2022 to January 2023.
Toronto Real Estate Price Projections
We think there are some pretty strong supports set between July 2022 to January 2023, but it’s lower than our current property values.
So given the current market dynamics and higher interest rates, we do expect more room for average prices to drop, likely settling at the strong support levels which are 10-15% lower than today’s prices.
Interest Rates, Uncertainty & Discounts
Let’s dive into rates a bit more, and bond yields have been a hot topic in the news lately. This is important for real estate because fixed mortgage rates are based on bond yields, and the huge swings in bond yields reflect how shaky the overall economic sentiments are.
The market’s uncertainty has actually shifted toward the long term, with bond yields experiencing some pretty drastic fluctuations. Over the past couple of weeks, 5-year Canada Government bond yields surged to 16-year highs, and more recently, we’re witnessing a decline in those yields after the IMF downgraded global growth forecasts for 2024.
Interestingly, short-term rates are stabilizing, and the US Federal Reserve even hinted that they might have reached peak overnight rates. And so even though uncertainty is definitely still lingering, things are slowly getting clearer.
The fact is that the level of discounts in the real estate market is often linked to the level of economic uncertainty.
Once we see more signs of rates holding stable (which is likely, given signs of stability in short-term rates), more confidence will return to the market, and the discounts won’t be as steep. However, due to persistent market uncertainty in the bond market, it’s a lot more likely to see big purchase discounts on real estate lately.
Where Are The Best Deals? An Example
Just note that it’s not everywhere. Turnkey properties and starter homes at lower purchase prices are always going to have more demand, which means they track average prices better.
But what’s fascinating is that we are seeing massive discounts, well over 15%, on individual transactions, especially those involving high-value properties or substantial renovations.
Here’s an example of a slam dunk deal we purchased for a client.
This property was listed for $1 million and sat on the market for over 2 months because it needed a lot of work, at least $200,000. Even at the ask price, you’re looking at an impressive $2,000 of positive cash flows … but it’s the $200,000 renovation budget ended up scaring most buyers.
In the end, our clients bought this for under $800,000, which is an impressive 22% discount off the list price. With 3 units in it, that ends up generating a massive $3,300 of positive cash flows each month.
At the end of the day, the rental numbers work really well even at today’s 6.3% interest rates. And even if the overall market does come down another 15% (but nobody knows if that’s actually going to happen), something like this ends up being a better deal compared to that or the lows that were set throughout half of last year.
How We Can Help
Projects like this definitely need a lot of work and are suited for more experienced real estate investors, but we’re happy to walk you through this and other options too because everyone’s investing experience and risk appetite is different.
Either way, this is the ideal market to get started. In today’s buyer’s market, you can take your time to learn the ropes, put in conditional offers so you don’t get pressured into buying, and have good bargaining power to negotiate on the price so that you get the best deal possible.
And if you want help with this, just reach out to our team. We specialize in investing in freeholds in Toronto, and we’re more than happy to chat with you. The first step is as simple as booking a Zoom discovery call with us!
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