Should you buy a home in Toronto right now? A real estate agent and an economist weigh in

After one of the most frenzied spring homebuying seasons in recent memory, sales of homes in Toronto have started to fall. Some think prices are soon to follow.

So we asked a couple of housing experts to get their perspective on what’s going on. If you’re a buyer, should you hold off on a purchase right now? Or are all the recent headlines about a housing cooldown in Toronto just scaremongering?

Here’s what an economist and a real estate agent have to say.

So is Toronto’s real estate market set to cool? Here’s real estate agent Tia Pham’s take

Canadian governments have introduced several policies in the past couple of years designed to cool housing demand. The latest round of policies, at least temporarily, seem to have done the trick.

Tia Pham, a real estate agent in Toronto, says the new policies have affected both housing speculators (those buying homes solely to profit off them) and residential owners who are looking to sell. Pham believes the policies have simply put many buyers on caution, holding off on buying properties to see how the market plays out in the coming months.

Pham says bidding wars, where buyers compete with each other to win a property with increasingly higher offers, are not as hot right now.

“You’re not going to get the 10 or 15 offers you would have. You’re going to get five,” she told me. “I’m not saying the demand has gone down, it’s just that the strategies and the approaches are different now.”

She says she would hesitate to say the market is truly dropping — at least not until more time has passed.

But David Madani, economist at Capital Economics, says recent signs point to a big price drop in the works

According to David Madani, the lower sales-to-listings ratio points to a price decline in Toronto. He agrees the new rules “spooked” investors and buyers in the area and that “essentially what we’re seeing is a confidence drop.”

That drop in confidence could lead to something of a self-fulfilling prophecy. If people are afraid of prices dropping and continue to hold off on buying, prices will inevitably drop too.

Here’s why Pham thinks it’s a good time to buy in Toronto right now

Pham says that for those who has been trying to enter the market and have a significant down payment ready, this could be a great time to get in.

“If you find a home that you like, yeah, make an offer on it. Because you won’t really have to compete with as many people. If you wait, and the market jumps back up in the fall, you’re going to kick yourself.”

She says it’s a good time for people who want a house to live in, but those who are trying to flip homes or make a quick buck — well, she says she doesn’t know if the current market is a good place to be doing that.

Pham predicts that the condo market is going to be the hottest area of housing in the next decade as people shift attitudes towards condos as a long-term home option, since more buildings are being built close to transit and with amenities that make up for the lack of traditional perks of single-family homes like a backyard and more space.

But Madani disagrees

On the other hand, Madani strongly believes buying a home right now isn’t a good idea. “Do you really need to buy now? Because if you don’t really need to buy now. then wait,” he said.

Madani has long called for a housing correction. He says the probability right now is especially high. The only question remaining is how large of a correction it will be.

Madani also warns that in the past decade, many Canadians — especially young people — have been sucked into buying a home due to their FOMO (that’s fear of missing out), instead of actually needing a house. Madani himself is a longtime renter and says he’s done it because it’s less expensive for him and he prefers to invest his money in stocks rather than tying it up in a property. Expanded rent control laws will help make renting in Toronto less expensive than buying, he says.

If you’re buying, one bright spot is that mortgage rates should continue to remain low

The Bank of Canada has held the key interest rate at a record 0.5% for two years now. In that time span, mortgage rates in Canada have fallen to record lows as well. Recent economic growth and pressure to cool the housing market has some predicting that the Bank of Canada to start raising interest rates soon.

While mortgage rates are tied to the key interest rate, they are also affected by bond yields, something Madani says potential home buyers should keep in mind.

He doesn’t think the Bank of Canada is going to raise interest rates significantly anytime, because low rates have been driving consumers to spend, which has been integral to helping the economy grow. Higher rates could make it harder for people to pay off their high amounts of debt and it would slow down housing sales. Madani thinks that would be a bad move, since housing has become a significant percentage of the GDP. The hit to the GDP would overshadow any potential gains from cooling the market.