The Real Estate Narrative in 2023
Have you ever considered how what you read about a topic influences your opinion on something? After 10+ months of negative headlines it’s incredible how our opinion on Real Estate has changed since a year ago. Clearly it’s not just headlines that support this change in mindset. Unexpected levels of interest rate increases have made it necessary to re-evaluate debt levels and asset pricing. However, I do find it interesting how quickly our opinion of something can go in and out favor in a herd type mentality. Our need for housing didn’t change in March of 2022 when interest rates started their ascent. However, the demand fell off a cliff. Sales dropped 38% from 121,000 in 2021 to 75,000 in 2022. Buyers have retreated in masses despite a significant pull back in prices, as financing costs skyrocketed.
How often we read a negative or positive headline may have more influence than we realize on our decision making. This New Yorker article outlines how negative headlines can greatly influence your mindset. Our mindset can influence us to delay or stall making a large purchase. Inversely it can cause us to act out of impulsive or FOMO. Negative Real Estate headlines which we have been exposed to for the past 10 months or so, are certain to be weighing on a big decision like buying or selling a home. So when can we expect the headlines to change?
While there are many unknown influences which will shape the Real Estate narrative in 2023. Last years stats is one certainty we can look at to understand how the story might be told. The main data points reported on in mainstream media are frequently year over year price appreciation, and year over year sales. These numbers often become the headlines of our media and can greatly influence the public’s perception of how the market may be performing, even if the market’s performance transitioned months ago.
Average Prices: In January and February of 2022, prices showed strong appreciation with the average price topping out at $1,334,000 in the GTA before retreating between March – July down to $1,073,000. Prices remained fairly stable for the rest of the year, bouncing between $1,080,000 – $1,050,000 from August – December.
This means that year/year average price appreciation is almost certain to be quite negative for at least the first few months of 2023. Something you are probably seeing currently reported in the media to start the month of February.
Year/Year Sales: We also know that sales were fairly strong to start 2022, despite a lack of inventory. Sales numbers fell off in tandem with prices. Many months from May to December hit lows in sales numbers we haven’t seen for 20 + years. Therefore it’s more likely we see some positive news on sales numbers as we compare them to weaker months experienced in 2022.
Zoom Out: Given the reliance on monthly year/year reporting, it might surprise many to know that the average sale price in 2022 was actually a record year, and 8.6% higher than the average sale price achieved in 2021. However, this achievement was caused by the sales conducted in the early months of 2022, and not reflective of the current environment. It seems likely that we will have a lower average sale price in 2023 compared to 2022. While at the same time it seems likely to end the year with more positve momentum in sales and prices than we did in 2022.
Buyers seem to be in a stand off with Sellers as they wait for more inventory. Sellers have shown resistance to list their homes, which was key in stabilizing prices. Looking for a strategic window with favourable inventory will be key for both sides of the sale. A wave of inventory has potential to create more negative price headlines. Another year of low sales in 2023 is possible. However, 75,000 is not a realistic annual sales number for the GTA for a prolonged period of time. The lower the sales number is in 2023, the more offsetting I expect 2024 to be. Demand for home ownership is expected to build and sales to revert back to more normal levels above 90,000 sales.
If rental prices continue to soar, and interest rate increases cease, both investor and end users are likely to creep back into the market.. While the narrative is likely to remain quite negative to start the year. Last year’s low points create a more appealing comparison and are likely to help form more positive headlines as the year progresses. Buyers looking to purchase should give some consideration on how a narrative change could impact competition in the market.
