Actually, I have no idea if the real estate market is going to crash…but let’s look at some historic data and dissect it a bit. Take a look at the image above. Toronto only had a real estate ‘crash’ back in 1989.
Look at the build up of average prices from 1986 to 1989. It peaked in 1989, but 5 years prior, it gone up 167.5% in price, on average 33.5% per year. We’re probably somewhere within those years now…I just don’t know which year, that’s the hardest part figure out.
In 1989 the average price peaked and then it started dropping…for 7 years until 1996 and it bottomed out. And then it took another 6 years to reach where the previous peak of the market was in 1989.
Look at the average price when it bottomed out though. It was just a bit higher than the 1987 average sale price, which was 2 years prior to the crash.
History can’t predict the future, but it can definitely give us a possibility.
In 2016, the average sale price on TREB was $729,918 (not shown in the image). That was up 17.3% from 2015. And from 2014 to 2015, it was “only” 8.3%.
Some of the average shown in the media are month vs month year over year…not the full year of average sales, so just be cautious of what you’re looking at.
Back when it peaked in 1989, the average sale price growth was 18.9% the prior year to the peak and 21.4% the year before that…so are we close?
Obviously different type of markets then and now. There’s no indication of any slowing down. Supply is still low while demand is high. Immigration is high. Interest rates remain low while the government can’t do anything about it. Also no sign of any major mortgage rule changes that could affect the industry.
Will foreign tax or this ‘vacant’ tax do much? Probably not. The foreigners that are moving money out of their own country are already wealthy to begin with and the rate that where their money is de-valuing is higher than the tax itself. So if you tax these people, it won’t really slow it down for long.
Let’s think worst case. Say this year is the peak and if we assume history repeats itself…the prices dropped 38.1% over the next 7 years to bottom out in 1996, and it took another 6 years for it to recover back to where it peaked in 1989.
That means the average price could potentially bottom out to about $451,819…or around 2011 prices.
Those people who are complaining about high prices, they can’t afford anything etc…can they afford this price now? If they didn’t buy in 2011, is it likely they’ll be able to buy when the market crashes?
So where are we now in the run up to the “top”? Do we have a few years left before we hit the peak and crash? Or is it coming this next year? And if it crashes, will pricing only go down to 2-3 year priors to the peak?
Again, a lot of these questions are nearly impossible to answer. But we can prepare ourselves based on the current market conditions:
1) It’s a great time to sell if you want to cash out.
2) If you’re buying, be patient. There’s a lot more demand than supply, but have some justification in the prices you pay.
3) Keep your living expenses down, live on less than you make and paying your mortgage (even if interest rates go up), shouldn’t be a problem.
4) If you don’t need to sell during the crash, then don’t. Hold it and ride it out. It’s not about timing the market, it’s the time spent within the market where you make money.
Hope this gives you a real glimpse of what’s going on in the market instead of those crazy headlines you read in the media.