The month of August marked the tipping point for Toronto real estate, and the rules of the game are now changing beneath everyone's feet. After more than twelve years of rising real-estate values in this city, prices dropped in August by one per cent, from an average of $381,681 to $377,990. The September figures, were even worse, with prices falling six per cent from of an average of $420,182 last year to $393,647.
More telling, total home sales for August fell by 22 per cent, from 8,059 last year to 6,318 this year, and the total number of listings ballooned, from 19,145 to more than 25,000. The decline continued in September, though not as sharply. Home sales were down 11 per cent.
This new market reality isn't just an economic shift, it's a cultural one as well, and everyone involved in real estate - from buyers and sellers to house-flippers and home stagers - will have to adjust.
Real estate almost everywhere in Canada has enjoyed sustained rising prices, but in Toronto, market forces seemed to be let off the leash.
As buyers flooded every neighbourhood of the city, sellers began pitting them against one another in "bid-night auctions," where buyers were kept in the dark as they named their prices. Soon many homes were drawing 10 bidders or more, and many couples were bidding on 10 homes before finally making a purchase.
The bull market lasted so long, that many of the practices turned into orthodoxy. Among the commandments of Toronto real estate: Sellers should price their homes low to attract more bids. For every additional bidder, the price ballooned by $10,000. Buyers without pre-approved financing will be ignored. Any offer conditional upon a home inspection is an automatic loser.
It was a market based upon pure desire -- and greed, one in which actual physical value had nothing to do with the purchase. The price of a home was based solely on how desperately buyers wanted a particular house, and what they were prepared to do to get it.
But those days are over.
"The balance of power has now shifted from sellers to buyers," says Sally Cook of Re/Max Hallmark. "Buyers have figured this out, but sellers are reluctant to acknowledge it. They are still pricing their homes aggressively, still trying to create bidding wars. They still think they dominate the market, but they don't."
But as punishing as the new market will be be for sellers, it's agents that will have to make the biggest adjustment. "For the past several years it's been hard to tell the difference between a good agent and a bad one," says agent Sandra Pate of Postcard Homes.
Because there was no shortage of bidders for every home, says Ms. Pate, working in real estate was like working at Tim Hortons, with agents serving the next person in line. "It's been basically an order-taking scenario," says the 27-year veteran of the business. "The market's been going up for 13 years. That means you can be an agent with 12 years of experience in Toronto and you've still never seen a down market. A lot of people have no idea what's coming."
If lower prices and fewer sales become a long-term trend, it will come as no surprise if agents start leaving the profession in droves. In the last five years, the membership ranks of the Toronto Real Estate Board have swelled by 10,000 agents, to a total of 28,089. Given that many agents who work in the greater Toronto area aren't TREB members, the actual number is probably higher.
All told, half of all agents in Ontario earn their living in the Greater Toronto Area, and it's doubtful the market can sustain any more. According to the Ontario Real Estate Association, since 2006 an average of 5,000 new agents per years have entered the profession - far beyond the more typical 1,400 agents per year back in 2000 and 2001. There are now 50,827 individual agents and brokers in Ontario.
No one keeps track of the number of professional home stagers in the city, but it's a near-certainty that their ranks will thin as well. Home stagers Bonnie Dell and Marty MacPhail, who teach a course titled Home Staging 101 at Centennial College, say they've adjusted their class discussion to account for the new market.
"We used to put the emphasis upon getting maximum value from your home," Mr. MacPhail says. "Now the emphasis is on selling it. The home staging itself hasn't changed, but the expectations have." Mr. MacPhail says that sellers used to be able to expect a return on their home-staging investment of about three or four to one. Today, home staging is marketed more defensively - as a means of ensuring your home doesn't end up in the growing bargain bin of unsold properties.
Welcome to the new reality of Toronto real estate!