Up, Up, And Away! – Toronto Realty Blog
I wanted to call this blog post, “Woulda, Coulda, Shoulda,” but by the time you finish reading it, you’ll be sick to your stomach. And any wishful buyer out there, upon seeing what I’m about to show you, will only conclude that I’m a sadistic ass for rubbing, “Woulda, Coulda, Shoulda” in their face.
But I’m not though. I’m just pointing out facts.
However, buyers are so on edge out there right now that one could easily conclude that the following is meant to hurt rather than help. I suppose I’m in no position to tell a buyer how he or she should feel.
Having said that, I want to make a claim that is going to have shock value, be met with cynicism, and instantly encourage a conversation about a market correction.
Ready?
Every property in Toronto is worth 10% more today than it was at Christmas.
And just like that, cue the critics.
But how can anybody take that at face value?
To see a stock move up or down in value with that level of volatility is quite common. But a house? A condo? And in only one month? No way!
Speaking of the stock market, what a month, eh folks?
Free coffee to whoever can tell me which stock this is, without reading further below:
Yeah, that’s what we could call “a real doozie.”
From a peak of $700 per share in November and down by 50% last week.
Netflix has fallen on some hard times!
Experienced investors know that this stock will come back. How long? Twelve months? Twenty-four months? I would bet that the stock trades above $700 once again, but the question is: will amateur investors wait?
Of course not!
Who wants to wait two years? Especially when the DOW starts to rip again in February or March, or whenever we see a comeback.
Amateur traders who get crushed by the market all do the same thing: they try to trade out of their position.
Say what you want about the real estate market, but houses don’t decline in value by 50% inside of two months.
Then again, they can, it seems, increase in value by 10% in a month. Or more.
You think I’m kidding, don’t you?
You want evidence, you say?
Alright, let’s start with something very simple just to highlight how frenetic the real estate market is.
Here’s a condo that sold at the end of July, 2021:
Nice place, nothing special. Just a run-of-the-mill unit in the summer.
It’s very, very rare in real estate that we move from theoretical price appreciation to actual price appreciation inside a short window, since people don’t trade real estate daily, weekly, or monthly like they trade stocks. But it just so happens that this condo sold again last week. Who knows why the seller held it for less than six months, but in any event, here’s the recent sale:
That’s a $68,500 gain in less than six months.
Or 12.8%.
Or an annualized appreciation of almost 26%.
So when you see stats saying, “The average Toronto home price increased by 25% last year,” and you want to think that this is some sort of seasonal bias, rounding error, or inflationary exaggeration, just look at that sale.
Then again, I haven’t even begun to show you what’s happened in only the last month…
When I say, “Prices are up 10% since Christmas,” I’m not exaggerating.
And if I added, “Some houses are up 30% since November,” you’re going to merely assume this is impossible.
How can a house price increase by 30% in two months?
That’s a topic for another day, with reasons ranging from low supply to increased demand, but just have a look at this listing:
This property was on the market in October and it didn’t sell.
On the market for 28 days for $899,000.
Now, let’s say you’re a potential buyer for a property that’s been on the market for 28 days. You’re probably thinking you can offer under the list price, right?
Maybe these guys wouldn’t have sold for $850,000, but I think it’s quite reasonable to assume that after being on the market for 28 days at $899,000, they’d have taken $875,000. So let’s just say $880,000 in November, and it’s a deal.
So what would that property sell for today?
I said that prices are up 10%, so add $88,000 and we’re at $968,000.
Would this house fetch $968,000 today?
Well, I did say that prices are up 10% since Christmas, and this property was on the market and terminated October/November.
Last week, this property was re-listed for $799,000 with an offer date.
Different agent, same photos, although they did magically find a second bathroom (the old 1-piece in the basement, which is likely a cold, lonely single toilet next to the washing machine…), but it’s the same house, folks. Make no mistake.
At $799,000 this house received an ungodly number of offers and sold for an insane price:
$1,080,000.
That’s $200,000 more than we figured this house woulda, coulda, shoulda sold for in November of last year when it was languishing on the market for 28 days at $899,900.
For those playing along at home, that’s 22.7% higher in two months.
As I said at the onset, active buyers don’t want to see this! They feel sick to their stomachs just thinking about this concept of “hindsight.”
But that’s the funny thing about hindsight, right? You always feel like you should have seen it coming…
Remember when the pandemic began in February of 2020 and we all started using Zoom? How come we didn’t pour all our money into that stock?
The entire world started using Zoom!
Who among us took our entire net worth and dumped it into this stock?
Trading at $68 to start 2020, the stock was at $75 when the pandemic began.
By the end of March, the stock had doubled to $150.
By May, the stock was over $200.
By the end of the summer, the stock was over $300. Have a look:
Hindsight!
But how come didn’t all see this coming? It was so easy, right? We’re in a worldwide pandemic and “social distancing” is the new phrase on the tip of everybody’s tongue, and our method of communication was going to change.
So raise your hand if you took your whole nest egg and bought Zoom at $75 per share?
Thought so.
That’s the thing about hindsight…
In the 2022 Toronto real estate market, hindsight is this magical thing that seems so obvious after the fact, and yet we all continue to stand around with our feet encased in concrete.
Case in point, this nothing-special listing:
This property was listed for sale in December, remained on the market over Christmas, and was still on the market when January began.
It was tenanted and the photos were of a vacant unit, so when the property came out last week, it wasn’t exactly the same. But the asset itself – the property, was the same. Just nicer photos, cleaner, and without people living there.
So again, we ask, “What could we have bought this property for around Christmas time, having been sitting on the market for four weeks?”
Listed at $599,900, maybe you could have negotiated down to $580,000?
Sure, let’s go with that.
So when the tenant left in January, the unit was re-listed for $569,900 with an offer date.
A member of my team showed the unit and her client was interested.
Knowing that this property was on the market for $599,900, unsold, and that it could have been had for $580,000 before Christmas, what did we think now? What did we offer in the third week of January?
$620,000.
A “bully offer” for $620,000, which was $20,000 more than the property was priced at when it was terminated after 38 days on the market, and $40,000 more than we felt it could have been bought for at Christmas.
Tough one, right?
To pay $40,000 more in the third week of January than this property was “worth” less than one month earlier?
The listing agent said, “Thanks, but no thanks,” exactly as expected, but we had to take our shot. There’s a chance that the seller, who was unsold after 38 days on the market at $599,900, would have loved to see $620,000, unconditional, with a deposit cheque in hand. But any seller who is actively watching the market right now (and that’s easier said than done, trust me) is going to know that really truly, the sky is the limit.
Up, Up, And Away!
Offer night came along and this property received 28 offers.
What did it sell for?
Hold on to your lunch…
Unreal.
$700,000 for a property that was listed for $599,900 only three weeks earlier, which we think could have been had for $580,000.
That’s a 21% increase since Christmas.
What was it that I said at the onset that likely made many of you chuckle in disbelief?
Oh yeah, this:
Every property in Toronto is worth 10% more today than it was at Christmas.
Well, many of you thought I was wrong, and in that, you’re right.
Except you’re wrong about how I was wrong, because some properties are worth more than a 10% bump since Christmas.
So relax, we’re both wrong.
But folks, to quote Randy Bachman…
You ain’t seen nothin’ yetB-b-b-baby, you just ain’t seen n-n-n-nothin’ yetHere’s something that you’re never gonna forgetB-b-b-baby, you just ain’t seen n-n-n-nothin’ yetNothin’ yet, you ain’t been around
Because here’s something you’re never going to forget, and I mean it.
This is the part where the alarm bell goes off.
I mean, if the alarm bell isn’t sounding about a condo that sells for 12.8% more in January than in July, and if the alarm bell doesn’t sound about a house selling for 22.7% more two months later, and if the alarm bell doesn’t sound about a condo selling for 21% more since Christmas, then we’ve set the bar really, really high. Or low. I don’t know which…
Check out this listing:
Nothing special.
In fact, to be on the market for 26 days and sell for a whopping $99,000 under the list price, clearly this type of real estate isn’t so hot, right?
This property sold last fall and was scheduled to close on February 5th, 2022.
But on January 18th, 2022, the property was re-listed for sale.
How?
As an assignment of the existing agreement of purchase and sale.
We see this all the time with pre-construction condos but almost never with houses.
In fact, I don’t know if I’ve seen this before in the last decade.
So what does a $900,000 house from November sell for in January?
Um, this:
Exact same house, no difference although these people magically found another bathroom, but let’s leave “typos versus misrepresentation” for another day.
Somebody paid $900,000 for this house, was scheduled to close on February 5th, and sold it for $1,275,000 on January 27th. It’s now scheduled to close on March 18th.
That’s a $375,000 profit and they never took possession of the house.
They also never paid land transfer tax.
But do you think they’ll pay capital gains on their $375,000? Topic for another day as well, and boy, are we ever racking up future topics!
This person made a 42% profit on their purchase in three months.
However, assuming all they did was provide a 5% deposit when they bought for $900,000, then that $375,000 profit is calculated based on their 5% deposit, or $45,000.
Their profit is thus 833%.
In three months.
Up, Up, And Away!
This market defies logic, folks.
Cue the talk about the market crash.
Oh, hey, what happened with interest rates anyways?
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