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Don't Sell Before You Watch This - Toronto Real Estate in 2027

The real estate prices in Toronto are expensive.

This was also the opening line in one of my seminars 5 years ago.

15 years ago, when I bought a detached house at $599,000 during the Great Recession, all the people around me thought I was insane because prices were so expensive.

You see, at any point in time, real estate prices are expensive.

It is only when we look back, then prices look cheap.

If you own real estate, then you want it to appreciate or at least retain its value.

If you do not own real estate, then of course you want prices to go down so you can get in.

That’s very natural.

But it is actually irrelevant which direction you and I want prices to go.

Let’s talk about what the Bank of Canada, the Government and the developers are doing to impact the prices.

I have a lot of valuable content to share with you today, so let’s dive in.

#1 The Bank of Canada

The real estate market is highly sensitive to interest rates and there is a direct correlation.

When interest rates are low, the market booms.

When interest rates are high, the market tanks.  

That’s exactly what had happened in the past 2 years.

The Bank of Canada has just started the rate cut cycle in early June and here’s what Governor Tiff Macklem said.

It is reasonable to expect further cuts.

Canada took the lead as the first G7 country to cut the interest rate.

Other G7 countries are expected to follow.

The Bank of Canada can potentially cut the interest rate 1-2 more times this year and 4-5 times more next year.

In any case, the downward trend on the interest rate is obvious.

So the Bank of Canada’s actions are going to be in favour of a stronger real estate market.

Of course, it wouldn’t make sense to expect a dramatic effect immediately.

As with all policy changes, it is going to take 12 to 18 months for the market to absorb and adapt.

So we are just going to see a slight boost in the market for now and it will take some time before we see the full effect of lower interest rates.

#2 The Government

The Globe and Mail did a very interesting interview with our Prime Minister Justin Trudeau on the most heated topic in the country, the housing crisis.

That’s a good summary of the crisis we are facing right now.

Is the government going to make housing prices come down so home ownership will become accessible to more people?

The host asked the Prime Minister a specific question and Trudeau made a very bold answer.

He probably spoke the quiet truth that most people would avoid talking about.

Housing is a zero-sum game, so existing homeowners want prices to stay high or even go up, those trying to get into the market want it to come down.

So do those who’ve broken into the housing market in Canada need to accept some sacrifices when it comes to the value of their home?

No, I think housing prices and houses will always be valuable in this country.

It is highly controversial but the government’s standpoint is clear.

#3 The Developers

I had lunch with a very famous developer last week and there are 2 key takeaways from our conversation that I want to share with you.

He said I had some really good deals on my Deal of the Week emails.

Sure, they are 20% off the original price because the sellers are losing all the deposits.

But it’s more than that.

What do you mean?

They are actually cheaper than today’s replacement cost. 

That means it is impossible to build a similar unit at this price now.

That’s important information.

Good for you if you bought one of those distressed sales.

I was curious to know the developer’s plans, now that pre-construction sales are almost at a stop.

Guess how many high rise units were sold in April this year in the entire GTA?

Only 518.

That’s more or less the same as what we saw in April 2020, when we were all freaking out about Covid.

That’s how cold the pre-construction market is.

Developers won’t be able to start construction with this kind of sales.

What’s he going to do?

He handed me a report from Altus Group.

Oh I see.

Crisis and opportunity.

You’ll get it when you see this chart.

Let’s go all the way back to 2010.

The number of condo completions in the GTA was well below 20,000 units.

I remember back in 2013, it was not easy to sell pre-construction condo units.

Especially when the number of completions started to increase above 20,000 units.

More and more parking lots in downtown Toronto started becoming condo sites.

That’s when people started talking about too many condos, oversupply and bubble bursting.

There were a few people who actually came out and said we actually had an under supply issue.

Of course, most people thought that those few guys were crazy.

And we all knew who turned out to be correct.

In 2017, there was a sudden jump in condo prices, from $800 per square foot to about $1,000 per square foot.

2023 was a record year for condo completions.

And this year, we are setting a new record.

The worst time to set a new record.

A sudden spike in supply in a high interest rate environment.

Rent is coming down and it is not enough to cover all the carrying costs.

We all feel the pain.

And I understand why you want to offload.

But I’ve been telling you to hold on and try not to sell at the worst times, if possible.

So how long do you have to wait?

Let’s take a look at 2025.

The number of scheduled completions is around 30,000.

But some of those are expected to fail, the portion shown in red.

They didn’t start construction because they couldn’t make sales.

The project was cancelled because the cost went unexpectedly high.

When we get to 2026, the failed portion will significantly increase because that’s reflecting sales in 2022 and 23.

Projects sold in those 2 years were scheduled to complete in 2026.

Sales fell short because of the rate hikes and many projects didn’t start construction as planned.

So instead of getting over 20,000 completions, we will only be getting approximately 15,000.

This year, 2024, has been a disaster for pre-construction sales, so what’s going to happen in 2027?

Look at the number of failures.

We will only be getting less than 5,000 units completed in 2027.

And we will be getting almost no supply at all in 2028 and 29.

I don’t know if the government has seen this chart yet, but we will be running into a very very serious supply shortage starting 2027.

On the other hand, the government is adamant that they have to keep immigration high.

So if we cannot stop the demand and we cannot provide supply, what’s going to happen to the prices?

The only way to increase supply is to encourage developers to start building and in order for them to start constructions, investors have to start investing.

But the new policies that the government put in are actually discouraging investors, so I really don’t see a way out on this supply issue.

If you own real estate in Toronto, you should hold on to it.

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