So, how was your holiday break?

No, seriously.  Humour me.  Tell me!  Tell us!

I’m clearly about to unleash a verbal torrent of unsolicited information about my holiday break, so it’s only fair that we hear about yours in the comments section below.

Perhaps a better question: what did you get for Christmas?

I got nothing.

Well, that’s not exactly true, which I’ll explain in a moment.

But my kids, on the other hand, wow, what a haul!  Their presents barely fit in their Christmas Boxes!

Wait…….what in the world is a “Christmas Box?”

It’s merely a Fleming family tradition, revived!

Credit to my mother, who was a grade-school teacher and incredibly creative, both of which helped her invent this excellent exercise and tradition for kids.  Every year, Julie, David, and Neil would head up to Bayview Avenue to “Mr. Grocer” and sift through the bin of cardboard boxes, like kids looking for the perfect pumpkin on Halloween.  We would pick our box, then head home and decorate it!  My mom was into recycling before recycling was a thing, so we’d have the luxury of choosing from various scraps of wrapping paper, ribbons, and random arts-and-crafts supplies to affix to our box, and then go to town on it with a variety of magic markers.

Once our Christmas Boxes were complete, we would spend two weeks fantasizing about all the gifts that would stack inside on Christmas morning!  I distinctly remember playing with my brother and sister in the upstairs of our Parkhurst Boulevard home pretending to open presents, and pretending to put them in our Christmas Boxes.

Fast-forward to 2022, and I didn’t take Maya and Duke to Mr. Grocer, er, Valu Mart, but rather I bought two moving boxes from Home Depot and brought them home for the kids to decorate.

Call that a “change in technology,” if you will, comparing 1986 to 2022, but the Christmas Boxes were a success!

Not only did the kids play with them for two weeks leading up to Christmas, but they’re still playing with them!  In fact, they’re playing with the boxes about as much as they’re playing with their new toys, which makes me think perhaps in 2023 I can just go with a cardboard theme and forego any actual expenditures?

That brings me to what I got this Christmas: nothing.

My wife and I decided this year that we would forego our annual gift exchange, simply recognizing that we have everything we need already, and that spending money for the sake of “having something to open” is pointless.  Of course, now that we have two children, watching the kids open their presents is more important and more meaningful than any token gift for my wife and I.

Anybody else in this boat?

I mean, I see the love and care behind providing your significant other with a gift on a special day.  But somewhere along the line, it ceased to be about that.

If you know me, you won’t be surprised to know that I have a spreadsheet of every Christmas gift, birthday gift, and anniversary gift et al that I’ve provided to my wife.

So let’s see………………Christmas 2013.

Black leather gloves from Michael Kors, a pair of Michael Kors shoes with “MK” on the toes, a beige Marc Jacobs purse, perfume from Sephora, a silly hat and scarf from Lands End, and a photo collage of our dog.  Total: $739.82.

But that was in 2013.  It was our first Christmas as a married couple.  We had no children.  Just Jenna, myself, and our dog, Bella.

But in 2022, is this necessary?

I have everything I need or want.  And if I didn’t, I’d just buy it.  Same goes for my wife.

Foregoing Christmas gifts is a great way to save a thousand bucks or more, and I’d rather spend that on the kids, or bank it.

Having said that, I didn’t truly get “nothing” for Christmas.

I did get one thing.

Occipital Neuralgia.

No, it’s not a cream for your face, or the name of a long-lost album from Nirvana.

December was a tough month for old Dave-o, let me tell you.

On December 8th, I hurt my back.  And when I say “hurt” I mean I re-aggravated a lower-back issue that has been persistent for almost a decade.  I’ve “hurt” this part of my body six times now, each time needing at least two weeks to recover.  But this was the worst one, and I was in bed for three days, literally.  I couldn’t move.  It took me five full minutes to slide my body off the bed onto the floor, so I could crawl on my hands and knees to the bathroom in the middle of the night…

Two weeks later, I was sick.  Not COVID, but brutally sick.  Ask me how much I enjoyed my brother’s 40th birthday surprise in a private box at the Toronto Maple Leafs game.  I know, I know, you’re all playing tiny little violins for me, and some of you are writing headlines for tomorrow’s paper, “Affluent Asshole Complains About First World Problems.”  All that matters is that Neil had a blast, as did the other nine guys in attendance.  But the irony wasn’t lost on me.

Then along comes Christmas, or Boxing Day, to be exact.  I wake up with a pain in my neck, which is giving me shooting pains to the front of my head, and my left eye is killing me.

Tylenol does nothing.  Same for Advil.

A day later, it’s worse, and I’m Dr. Google over here, self-diagnosing, which your family doctor absolutely hates.

Four days in, and I’m losing my mind.  Everything from the heck up hurts like hell and I can’t focus my vision on so much as my iPhone.  Now I’m self-medicating, taking leftover Cyclobenzaprine from years past, with a Naproxen chaser.  No dice though.

Ask me, “David, why didn’t you go to the hospital,” and you’ll get me started on a rant about Canadian healthcare.  I mean, I guess I could have gone to Emergency, so I could wait four hours in the first room, only to be moved to the second room where I wait another two hours, then to be examined, and told – two hours later, “Go home and monitor it.”

That worked well for my mother in 2015 when she went in with abdominal pains, only to be sent home.  But twenty-four hours, two return trips to the hospital, and one emergency surgery later, I’ll never forget the look on the surgeon’s face when he said, “It’s a good thing you came when you did, otherwise your mother would have died.”

Topic for another day, you say?

I’ll come back to this when we discuss “New Year’s Goals” and I mention the desire to be less cynical, sarcastic, and pessimistic.

Boxing Day through New Year’s was a waste.  I “rested,” which is the worst and laziest cure for any ailment, slept, used a heating pad on my neck for hours on end, and felt completely unproductive.  My wife went to Atlanta for three days so I had both kids and barely made it through.

And now…………….welcome to 2023!

2023.  Yikes.  That’s going to take some getting used to.

Remember when you were a kid and you’d put the date in each day’s school workbook, only to mess up the year for the first two weeks of January?

Today, it’s like: how long until you stop accidentally signing cheques with “2022” instead of “2023?”

Wait……who actually still signs cheques?

This guy.

So with my honourary deluge of holiday memories out of the way, shall we actually talk about real estate?

As is the custom with my start-of-the-year posts, I like to look ahead to what is or may be topical over the next twelve months.

The beginning of last year saw a two-part blog series called, “Burning Questions For 2022.”  I barely got through two questions before I had to break for the day.

2021 featured a “Top Ten Burning Questions” that stretched into three blog posts.

And 2020’s first post of the year, also three-parts, was called “Real Estate Discussion Points For 2020.”

Whether we’re asking questions about the real estate market, outlining concerns, or detailing topics of interest, you know the first feature of the year is an attempt to look into our crystal ball and make note of expectations for the year ahead.

So at the risk of sounding unoriginal, let’s call this one our “Top Discussion Points of 2023.”

1) Home Prices

Thank God we’re not talking about inflation again, right?

Two topics that dominated discussions last year were inflation and interest rates, and I’m sure that you’re oh-so-happy to find they’re not atop our list to start 2023.

Not atop our list, I said.  But for those that enjoy watching the same movie over and over, never fret, because they’ll both make an appearance later on…

Over the holidays, I received a call from a property owner in Mississauga who asked me about my outlook for 2023.  I told him that while I didn’t have a crystal ball, I felt we were likely at the bottom of the market decline and that I felt 2023 would be a relatively flat year.

Every time I offered insight, he would respond with a leading question.

“But the market has to go up, right?” he asked, after I said we were likely looking at a flat year.

“There’s no supply out there,” he said, before he offered his take with respect to the lack of supply leading to an increase in prices.

“These interest rates aren’t actually high,” he said.  “Five-year rates of 5.5% are historically really low,” he offered.

I’ve had these calls before many times, so eventually, I just asked, “Are you looking to sell this year only if prices go up?”

He didn’t answer in the affirmative but rather offered a response that underscores just how entitled today’s home-owners are:

“I would sell if I could obtain the true value for my home.  The drop in prices last year was completely bogus.  It was the direct result of the government driving interest rates through the roof and scaring off buyers.  Houses ARE worth what they WERE worth.”

I asked him, “What do you think your house is worth today?”

To that, he responded, “You mean what should it be worth, or what has the artificial market drop told buyers it’s worth?”

I rephrased and said, “What do you want to get for your home?”

He said, “I need $1,600,000 and I’m a seller.”

I told him that I would do some digging and get back to him.

This was just before Christmas so I had time on my hands, and even though I knew this wasn’t going to produce any business for 2023, I also knew it was a great social experiment.

The first thing I noticed about his house was that he bought it for $612,000 in 2011.

So this house didn’t “owe” him anything.  It’s not like he needed $1,600,000 because he paid $1,550,000 in 2021 and he’s trying to recoup what he paid plus land transfer tax.

The second thing I noticed was that a very similar house sold on his block in March of 2022 for $1,575,000.  And to date, that stands as the high-water mark in his neighbourhood.

So let’s regroup: a home-owner sees that his neighbour sold for $1,575,000 in March, near the market peak, and has decided that he “needs” not just the same as his neighbour, after a 20% on-paper price decline in that area, but rather more!  He wants to beat that record sale by $25,000, which is his lazy way of rounding up.

The average home price in Peel Region is down 17.7% from March of 2022 through November of 2022.  Maybe his neighbourhood, housing type, or price point is down less but either way, let’s assume it has to be down by 10%.  That would mean, comparatively speaking, his house is worth around $1,417,500 if it’s the same as his neighbour’s.

Having bought the house for $612,000 in 2009, this would mean his home rose in value by 131.6% in twelve years.

That’s about 11% per year.

Not bad, right?

But not good enough, it seems.

I called him back the day after we spoke (he didn’t want to provide his email address) and walked him through the sales on the phone.  He interrupted me every ten seconds to explain why I was wrong, and while I did find it annoying and unprofessional, I basically started writing this blog post in my head.

I started to ask him what I thought were rhetorical questions, such as, “If your neighbour offered his house for $1,400,000 in 2023, should a buyer be expected to pay $1,600,000 for yours?”

He said, “If they’re thinking long-term, they will!”

I said, “Why wouldn’t they just buy your neighbour’s house for $200,000 less?”

He avoided the question and said, “Well my neighbour shouldn’t be willing to accept $1,400,000!  He should be furious about the artificial market drop too!”

When he was almost out of arguments, he reached back and pulled out the last resort of retorts: age.

“I’m a lot older than you,” he said.  “I’ve been in the market a long time and I’ve owned a lot of properties.  There’s one thing I know about real estate that it seems you don’t: real estate always goes up in value.”

I agreed with him.

But then I added, “However, it can and does fluctuate in the short and medium term.”

I wished him good luck with his sale, he provided me with one final chirp about how I “clearly wasn’t up to the challenge he was offering,” and that was that.

What a beauty.

And sadly, I feel like there’s a lot more folks out there who have the same blinders on.

Here’s a twenty-year chart of the average home price in the GTA:

“Real estate always goes up in value.”

Yes, it’s true.  There’s simply no denying this.

However, this is a 20-year chart with monthly prices plotted.  And within the long-term uptrend, we can clearly see two short-term downtrends in 2017 and 2022.

The market decline in 2017 is still fresh for many people but for others, it may as well have been before they were born.

I would estimate that half of all licensed real estate agents in Toronto weren’t in the business in 2017.

And when it comes to homeowners, there are a lot of people who purchased their first home in the last six years, not to mention all the prospective home owners who are starting their searches in 2023 with no recollection of what happened in 2017.

Both the 2017 and 2022 declines were motivated by government intervention.  The 2017 decline, amazingly, was based on more talk than anything.  Sure, there were some policy changes, but nothing remotely close to the interest rate hikes of 2022.  History will show just how incredible and unprecedented seven rate hikes in a single year were, not to mention the start-to-finish increase from 0.25% to 4.25%.

But how do the two market declines compare?

The 2017 peak-to-trough was April to August.

The 2022 peak-to-trough was February to July.

It’s incredible just how closely these two markets aligned.

And for those that might suggest, “The GTA includes the suburbs, and they were hit harder than the 416,” I would offer this:

In 2017, the 416 actually declined more than the GTA average, whereas in 2022, the decline lagged behind.

And while the “on paper” data always shows one thing, and what we see out there in practice shows another, I can tell you that I’ve seen very few, if any properties in the central core that have declined by 18%.

Throughout 2022, we determined that in addition to the interest rate hikes, one of the “causes” of the market decline was the ridiculous amount of appreciation in the first two months of the year.

From December of 2021 to February of 2022, the average GTA home price increased by an incredible 15.3%.

So how does this compare to 2017, you ask?

In the two months that led up to the “peak” in 2017, the GTA average home price only increased by 5.1%.

But the differences stop there.

In fact, if we were to look at peak home prices in both 2017 and 2022, then see how much those prices increased over time periods of 2-months prior, 6-months prior, 12-months prior, and 24-months prior, the stats are quite similar:

Work backwards, and you’ll see the percentages diverge.

The figures are 1.8% apart at 24 months, 3.0% apart at 12 months, 3.9% apart at 6 months, and then there’s just no comparing the prices 2-months prior to the peak, as 2022 was more than 10% ahead of 2017.

There’s no doubt that the seven interest hikes in 2022 were a cause of the market decline, but I would also offer that the 15.3% increase in prices from December to February was equally as important.

Now, for those with short memories, perhaps we should chart average home prices from the onset of the pandemic to today, right?

This is the point I have made about any “market downturn” over the last two decades.

The market bears, the wishful buyers, and the Garth Turner fan club have called for the “crash” since I was in university, but it’s never come.

With the average home price in the GTA declining 19.5% in 2022, that simply returns us to 2021 values.

Look at the chart above.  Now look at that blip from February to April of 2020.

That was the pandemic-induced “collapse” of 2020.  And it lasted for two months.

The average home price in the GTA is up 18.6% since the onset of the pandemic in 2020, and while that’s not enough for folks like Mr. Mississauga who only wants to sell his house at the all-time high, it’s part of both medium and long-term uptrends.

I read so many online articles last year about the market drop, decline, crash, and correction, and all the while, I thought about how short-sighted these “authors” were being, especially as most of them were in their twenties and were writing for online rags, not unlike this one.

There’s this unabashed glee among many when the real estate market is anything but robust, and I recognize it’s part and parcel of the city of Toronto’s shift toward a London-esque housing market, but so much of it stems from entitlement and ignorance, not to mention immaturity and naivety.

Twenty years from now, owning a home in Toronto will be reserved for a few.  Most will rent, commute from the suburbs, or learn to live in smaller spaces.  Every time I watch a movie or show that takes place in Europe, I watch people step outside their apartments like it’s a normal thing to do, whereas we in Toronto expect to walk across a lush lawn, down our private driveway, and onto a double-wide boulevard.

Nobody in New York, London, or Paris expects to own a home the way we do here in Toronto.

The Guardian and Le Monde aren’t consistently running features on down-on-their-luck 20-somethings who can’t afford to buy a home in London or Paris.

Toronto is a city still in transition as every generation had, has, and will have a different experience in the real estate market.   Early-stage Millennials were able to purchase homes, early-stage Generation Z is finding it increasingly difficult, and late-stage Generation Z along with the entirety of Generation Alpha won’t even try because they’ll know it’s impossible.

Twenty years from now, when the average home price in the GTA is $3,000,000, we’ll look back on a forty-year housing chart and see 2022 as nothing more than a “blip.”

Those feeling scorned by the market in late-2022 won’t see it as a “blip,” but if you add some context to what’s happened in the last two years or five years, the picture becomes much more clear.

My prediction for Toronto home prices in 2023: flat.

Less volatility, more predictability, but a slight uptick by the fall.

The average home price in November of 2022 was $1,079,395.  I’ll bet you my favourite G.I. Joe t-shirt that the average home price in November of 2023 is higher than that…

2) Mortgage Renewals, Trigger Rates, & Interest Rates

I was talking to a friend of mine the other day and she noted, among other things, “Our trigger rate has kicked in!”

She sounded rather aloof about the topic and certainly didn’t seem worried.

I asked her what her mortgage payment was, last year and this year, before the trigger rates kicked in.

“Ummm, maybe something like six grand?”

I then asked her what her new mortgage payment was, and she shouted to her partner, “Hey, what’s the mortgage up to now?”

As I said: she didn’t seem worried.  She didn’t even know what the payment was!

A muffled voice shouted something back at her and she told me, “He thinks, like, I dunno,” then took a long drag of a cigarette and like Juliette Lewis in the opening scene of Old School, exhaled while answering, and said, “He thinks something like ten-grand……….and change.”

How many of you are uncomfortable right now?

No, not because you’re visualizing that scene with Owen Wilson, Juliette Lewis, some people jumping out of the closet “like a goddam magic show,” and an excellent cameo from director, Todd Phillips, but rather because you’re thinking about a mortgage payment going from $6,000 to $10,500?

This is where the laymen often refuse to sympathize and suggest, “Anybody that can afford a $6,000 mortgage payment can afford a $10,500 mortgage payment.”  I hear that all the time when I lament that land transfer tax on a $4,000,000 house is almost $200,000, and the response is, “Anybody that can afford a $4,000,000 house can afford a $200K tax.”

That’s not the point.

Imagine going from $6,000 per month to $10,500?

How does that affect your personal finances, lifestyle, and anxiety level?

“We’re not gonna change shit,” my friend told me.  “Maybe we buy cigs in cartons instead of packs?  I dunno.”

Luckily, she and her partner can afford to not change shit.

But what about everybody else?

I mentioned that I did a lot of reading over the holidays, and this article suddenly seems relevant:

“‘It’s Choking Me’: This Homeowner’s Mortgage Payments Have Shot Up By More Than $1,000 A Month. What Should He Do?”
Toronto Star
December 30th, 2022

First of all, kudos to the writer of this article for actually finding a person to go on record with this, and pose for a photo.

His name, image, and likeness are now associated with naivety, financial mismanagement, and woe-is-me syndrome for as long as this “Google” thing stays around.

As the article explains, his mortgage payment on his house went from $730 per month to $1,165 and his mortgage payment on his rental property went from $1,100 to $1,175.

That sucks, right?

Except that, it doesn’t.  He’s up a paltry $1,110 per month on two properties.

(womp womp)

He bought his house in 2010, which means that it’s likely doubled in value, if not more.  So he’s not without equity.  And if he is without equity, then the story here shouldn’t be about mortgage renewal rates but rather about people using their house as an ATM, living lavishly, and ignoring financial responsibilities.

“I basically have no life,” he says. “Luckily my income is still strong but I’m very conservative when it comes to financial stability. If interest rates rise drastically, I back off on everything else to avoid filing for bankruptcy.”

Filing for bankruptcy?

Where did they find this guy?

The article is fear-mongering at its best, but it doesn’t mean that this won’t be a continued topic through 2023.

And if we really want to fearmonger, can we use the d-word?

Default.

Oh boy, here it comes!

Welcome to 2023 where we get very inventive with the news!

The Toronto Star article uses the word “default” a total of seven times!

But more on that later, since I had planned for this to be its own discussion point.

As for the “trigger rates,” which were a theme in late-2022 and will continue to be a theme moving forward, some believe we’ve already reached our peak.

This article is now a month old but it serves its purpose:

“Mortgage Rates Set To Soar Higher After Latest Interest Rate Increase, But End Of Hiking Cycle In Sight”
Financial Post
December 7th, 2022

This article came out after the Bank of Canada raised the overnight lending rate from 3.75% to 4.25%, which caused the Big-Five banks to raise prime lending rates from 5.95% to 6.45%.

With respect to trigger rates:

The central bank’s recent data showed that about 50 per cent of variable-rate, fixed-payment mortgages and nearly 13 per cent of the entire Canadian mortgage pool have already hit their “trigger rates,” or the point where monthly mortgage payments are only covering interest and not making headway on the principal.

Fifty percent in early-December?

How much juice is left in the squeeze at this point?

I do believe that “trigger rates” will be a huge topic of conversation in 2023, but I think that just like a drunk-dial in your early 30’s, it’ll be all talk, little action.

The worst is behind us in this regard, but it’s not unlike the media to beat a dead horse.

As for actual interest rates, which I think we’re pretty tired of talking about, what’s in store for 2023?

Most are banking (no pun intended) on another rate hike on January 25th, this time perhaps only 25-basis-points.

But is that the end of the line?

Many think so.

From the same Financial Post article above:

“Rather than suggesting ‘the policy interest rate will need to rise further,’ today’s guidance is that ‘Governing Council will be considering whether the policy interest rate needs to rise further,’” RBC Economics senior economist Josh Nye wrote. “That clearly opens the door to a pause as soon as the next meeting in January, and in our view frames that decision as between zero and 25 (basis points).”

As written in THIS article in the Financial Post:

“Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target,” the statement said.

That language represents a shift from explicit guidance that interest rates were headed higher no matter what.

Now, the Bank of Canada is saying that 4.25 per cent might represent something of a sweet spot: an interest-rate setting that will deter households from continuing their post-pandemic spending spree, but maybe not by so much that weaker demand turns into a spike in unemployment.

The central bank’s moves from here will be based on data, not a predetermined path where the only question ahead of a policy meeting was how high? The option of pausing will be on the table when Macklem and his deputies next meet ahead of their Jan. 25 decision, depending on how the data breaks over the next six weeks.

I suppose that’s good news, right?

The idea that the Bank of Canada will look at actual market data before making a decision on further rate increases?

The best line in the article was this one: …”an interest-rate setting that will deter households from continuing their post-pandemic spending spree, but maybe not by so much that weaker demand turns into a spike in unemployment.”

That’s what we’re all after, right?

I spent a lot of time in 2022 writing about consumption and just how wildly our spending habits changed at the onset of the pandemic in 2020, thanks to Amazon Prime and grocery deliveries, but also because of people coming “out of the pandemic slumber” and deciding to live it up.

But the Bank of Canada’s goal shouldn’t be to drive us into a recession (that’s more the taxation policy of the federal government….) but rather to avoid shrinking the economy, putting pressure on businesses, contributing to downsizing – leading to unemployment, and all the while, crushing the national housing market.  The Bank of Canada should be seeking to find balance.

Personally, I think we’re about to find that balance.  I think the government has done all they need to do, and if a picture paints a thousand words, then look at this one:

How much higher can we go?

How much higher do we need to go?

The Bank of Canada’s job isn’t to teach us all a lesson.  And even if there are millions of people in the country who still haven’t learned their lesson, their day will come.  For now, I believe we need to let this new interest rate environment normalize over the next 12-24 months while avoiding a recession.

Can that please be the last we talk of interest rates in 2023?

Yikes.

In the words of an immortal, “Ooops, I did it again.”

That is just so typically me.

We’re well past anything that could be described as “normal” for the length of this post, so suddenly it feels like our discussion about the 2023 real estate market will have to span into next week!