Toronto’s Housing Tomorrow: 2024 Analysis and Forecast

There’s good reason for optimism in the Toronto real estate market. Steve Tabrizi, COO of RE/MAX Hallmark joins Des to look at the current state of the real estate market and their predictions for 2024. They discuss the impact of interest rate hikes on the market, the increase in inventory, and the potential for a rebound in the market in 2024.

They also discuss the implications of the new Trust in Real Estate Act in Ontario, which allows for open bidding, and the potential impact of a class action lawsuit in the US regarding real estate commissions.

Listen For
3:22 The Psychological Impacts of Interest Rate Changes on Both Buyers and Sellers
6:03 Future Market Predictions and Interest Rates
9:52 Analysis of the Current Market Conditions and Inventory
13:26 Opportunities in the Condominium Market and Pre-Construction Inventory

Guest: Steve Tabrizi, Broker / Owner and COO RE/MAX Hallmark Group of Companies
Steve’s website

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Desmond can be reached at:
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Recorded in Sep 2023

Transcript

Desmond Brown (00:01):

Happy New Year and welcome back to Sold in the 6ix. I hope you had a wonderful holiday season and that your 2024 brings you everything you've ever wanted in real estate. We're always looking ahead and to look ahead. We're always analyzing what's happening now. I'm Desmond Brown and today on Sold in the 6ix. We look at what's happening today, what we can expect this coming year, and some of the issues and changes that we're going to anticipate. Steve Tabrizi is our company's Chief Operating Officer and I'd like to say he's our in-House economist because he knows more about the market than pretty well anybody I've ever spoken to. Steve, welcome back to Sold in the 6ix.

Steve Tabrizi (00:57):

Thank you again. Again. It is great to see you and thank you for inviting me to be on another episode with you and I look forward to our chat.

Desmond Brown (01:06):

Yeah, I always love our chat, Steve. So why don't we touch on what everybody talks about at every dinner party and probably went over during the holidays as well, but let's talk about the real estate market, our current condition and what's happening out there.

Steve Tabrizi (01:23):

Well, I guess we are at the end of the 2023. It was quite a, I would say rollercoaster year. We started initially with the obviously hike of the interest rate, but sometimes in February after this year, the government of Canada decided to pause the rate and then we had a very nice rebound of the market from March almost to the end of the June. In June. Bank of Canada suddenly decided where they want to do two consecutive hikes, which they did and that's where we noticed the market finally after the 10 hike of the interest rate really changed its course and its direction. Finally, I would say it was a nice job not only within the respect of the real estate market into the economy and we had a decline of activities since I would say probably from August and forward, but we did not have a major decline in prices.

(02:31):

We have also obviously a massive inventory of the pre-construction condo. Those are the notable element in the market and now for the last two announcements, the Bank of Canada has paused and we are also noticing in a summary that the bond rate market finally it's reverting to be a normal course. The bond market is dropping and in the last two weeks for the first time we are seeing a very good sign on a five years fixed mortgage. As of today, there are institutions that they offer anywhere from about 5.3 to 5.4. So I'm very optimistic with the 2024 and with the start of the 2024 for a variety of the reason which we can get into it I'm sure later part of your episode.

Desmond Brown (03:22):

Yeah, for sure. So when rates are being increased and then we had the pause, we had the three pauses in a row. Psychologically, what does that do for people wanting to get into the real estate market? I'll just tell you what I think anyway is that a lot of people sat on the fence wondering, are the rates going to come down? And before I take a step and want to purchase another property, I want to see what's happening with the rates and what's going on with the economy.

Steve Tabrizi (03:51):

Well, we have two category of the clients in the market. We got a seller and we've got a buyer. Our sellers are, I will call them, I refer to them, are quite confused, quite puzzle. But in contrary, buyers in our market are eager and as you said, they're basically sitting on the sideline and both parties, they are looking for that moment or that date that they see a rebound in the market in a different direction. Sellers, they want to see upwards direction back in activities because they will immediately impact their prices and the buyers, they're all looking for a bottom line and I think the buyers really have seen the bottom line, the bottom line. It's probably dare and done almost about a month ago. And I think if the buyers are in the market and if they don't really react quickly, particularly in the next maximum, I was predicting the buyer will have the opportunity for about eight or 10 months. I'm now reversing my opinion, I think the buyer will have maybe a maximum of the opportunity to take advantage of the market maybe five to six months.

Desmond Brown (05:10):

Yeah, because I think when the rate comes down and that's what we're predicting second quarter of 2024, we're going to see a lot more activity and a lot more competition. So it is a good time to jump in there. I know we're real estate agents, we always say it's a good time to jump in, but really the window of opportunity, and we said this before on this podcast, as we've gone up and down through the last year and a half, two years in this market, there have been little windows of opportunity along the way and it's hard for people to time the market to get that best deal and all that, but I really do feel that everything is pointing towards more an increase in the average price next year. I mean, one of our competitors already said that they're looking at an increase of about six across the board next year in prices and the rates are going to come down. They really are.

Steve Tabrizi (06:03):

I think people forget to look at how our market is behaving. Everybody talked this year about the interest rate, which is really cause the affordability performance of the buyers to qualify for certain dollar for mortgages. And everybody talks about supply, supply, supply, supply supply. But one thing that people are in the last two years are not paying attention. It's the massive demand that does exist and is sitting on the fence line. And that massive demand due to the immigration policies, good or bad, is building up, is building up on a record pace. And one of the best indicator, I talked to our agent, I talked to other colleague in the industry, I said, why don't do me a favor, just go on the weekend, take a look at the open houses. Open houses are back probably for the first time after the covid and you'll see open houses, there is a very healthy traffic through the open houses.

(07:04):

People don't go open houses just simply for window shopping or just having a hobby or leisure. Obviously those people are thinking and considering opportunities within the market. So that's one element. So the demand is tremendously there. Canadian market always, I call it get really lucky. They got a horseshoe basically protect them for some variety of the reason and this year people are not paying attention to one of the most important element that really going to impact our market from the earliest stage of the 2024 is US election. US election always cause the abundance of the money is spent by the presiding president stimulus packages into the market. They create more job, more opportunities, therefore we need to make sure our dollars, it's really at the comparable comparison with the US dollar because of our export. So it will indirectly impact our business. The third element, the hike of the interest rate, it did its job.

(08:15):

The economy is literally sitting at, not by Stats Canada at the negative performance because of the massive amount of the immigrants that are coming into the country and they're bringing the funding, they're bringing the money that're spending the money, but the economy for the last two months is performing literally at a flat rate of the maybe zero or 0.2 of a percentage above it. So Canadian government has heard it loud and clear it's time to reduce the rate, but Bank of Canada, the governor of the Bank of Canada, he's quite as smart and he realized he cannot reduce the rate contrary to many of economies that they're talking the 2024, we're going to have a drop of the 1% or one and a half percent. I don't think so. I think we will have a quarter point by before March, we'll have another quarter point before June. So those two quarters plus the drop of the bond market, I assure you by February the five years fixed mortgage will be 4 9 9 4 9 5. And if you look at the historical data of the 2019, guess what our normal mortgage rate from variable to the fix was anywhere between three and a half to four and a half. So we are not really far, we are only about a 0.8 to go back to 2019. And that's why you see the market will rebound again heavily.

Desmond Brown (09:52):

Yeah, no, exactly. And I'm just taking a look at the latest stats. Our average price here in the greater Toronto area or on the Toronto Real Estate Board anyway is just a million, just over a million, 1,000,080 thousand I think it is, which is where it was at this time last year. So what does that tell you? However, our listing inventory is up by about 16%, which leads obviously to longer days on the market. And I think it's all a matter of managing expectations. So when we're going in for listings now and talking to our clients, we have to tell them, no, we're not going to sell overnight. If we do, yay, let's have a party, but it's going to take 30 days, 40 days on the market before we sell this and we just have to have patience.

Steve Tabrizi (10:38):

I think we've got to also pay attention to the listing. I firmly believe that probably 50% of our listings are there by the virtue of scarcity from the seller standpoint, by the issue of some people maybe during the last four years, they have stretched themselves beyond their capabilities, so maybe height of the interest rate and renewal of their mortgage. So they are forced to sell. These are not, to my humble opinion, the real listings that in a normal market you see, and then also we have a big portion of a seller, which I'm sure that you deal with them, that they're in the market and they're unreasonable if the consumers take a look at the change of the price cancellation and relist is almost 70% of the inventory of the listing.

Desmond Brown (11:36):

Yeah, exactly. Yeah.

Steve Tabrizi (11:37):

So if you separate a listing that is priced properly and there is a right motivation for a seller is there actually the listing is not up it.

Desmond Brown (11:48):

Yes. Okay. That's a really, really great way of looking at it and it's so true because seeing a lot of that on our updates, on the daily updates, I'm seeing so many terminations or price reductions or in some cases people are still increasing the price. I don't get it and not as many sold based on that. So that's all exactly, that's our update page that we check on every single day. But you know what, I think the corner is being turned. You're right, there are some people that are desperate to sell. They got in a little bit in over their heads and we didn't see that for many, many years. But generally speaking, people are selling for a reason whether they want to upgrade, downsize or they're getting transferred.

Steve Tabrizi (12:38):

Correct, correct. Yeah. So the reasons are there, but there are some other reason due to the interest rate that is basically has caused the increase of the inventory. But in some segment of our market such as the condominium, such as particularly in pre-construction, we see massive increase of the inventory and majority is due to the fact that people who bought 2, 3, 4, 5 years ago and they thought they would qualify for a mortgage for closing, now they do qualify, but it's very hard for them to close. So we see a tremendous great opportunity in a condo market, which is great for a first time buyer at a price point of the four years ago, not at a price point of the 21, 22 or 23.

Desmond Brown (13:26):

Yeah, so true. You can get something for under 500,000 now. Exactly. That's pretty amazing. A nice one bedroom for under 500,000.

Steve Tabrizi (13:34):

Exactly. And people got to seize that opportunity.

Desmond Brown (13:38):

Yeah, they really do. Okay, so I'm going to talk about the elephant in the room that always comes up with us as realtors and that's commissions and down in the US this made headlines that there was a class action lawsuit and a 1.8 billion settlement down in the US regarding commissions, and it was based on how do we explain this? Clearly the seller pays the commissions, however the suits insinuated that the commission that the seller's paying actually inflated the price and it was detrimental to the buyer and really meaning in the end that the buyer was paying the commission by paying a higher price for the property even though the seller was cutting the check for the commission that was going to both the buyer brokerage and the listing brokerage. And I'm just wondering, can a lawsuit like this fly here in Canada, has it ever been addressed?

Steve Tabrizi (14:38):

Okay, so first of all, US is really a big complex system of MLS 50 states, different rules and regulatory issues at the state. This is started from misery and the argument against the Nor National Real Estate Association was that they may have not a clear policy about the percentage or the amount of the commission for a co-op or buyer agent, which at the state level they lost the first battle, but nor has demonstrated in the last three, four weeks that the entire argument or witness and the documentation was not properly presented. So now it's going through its course of the appeal palate court, state court, and then it will go all the way to Supreme Court. I know for five sure will we face this issue sometimes in 2 0 7, 2 0 8 called Competition bureau. So MLS system in Canada, in Ontario in particular, it's very well crafted.

(15:52):

There was never been a fixed pricing of the commission. The commission that the sellers pays or the buyers the agent end up receiving. It's in exchange of the different level of the services a realtor provided to their sellers. Yes. If you want to think about it in a big picture, the price that the buyers pays, it's basically cause in terms of how the commission to be facilitated through the seller to the both agencies. So you can address a different way. Buyer can say, yes, I paid this price to the seller, but the seller end up paying this portion of it to their agent or their listing agent or buyer agent. I think that's irrelevant. I think the argument in US was about more than anything else, the policy that Dinar didn't have a clarity with it. In Ontario, Ontario Real Estate Association, MLS rules, Rico Real Estate Council of Ontario are very clear.

(17:00):

The commission is in exchange of the services that consumers will receive from their buyer agent or listing agent. So there's no price fix. It could be as low as in our system actually on a co-op or a buyer agent as low as $1 as high as Yeah, we've seen that. Yeah, we have seen that. We call them me posting as high as whatever percentage that both parties agrees, but consumers need to also understand a business costs to run and to operate. And it's been over modeled for past 50 years. The financial institution and the bank, they approve it and that how both parties, they get paid. Imagine if we remove the buyer commission completely from this equation and now we are in a market that is already unaffordable. Now we are going to go tell our buyers directly that you have to pay the commission to your agent and is not financeable through the bank. So do you think our market is going to become more healthier, more robust, the more competitive, or do you think our market is going to actually have less buyer? I frankly think the market is going to have less buyers because now we have a buyer that doesn't matter. Even if the commission is 1%, even if the commission is a flat fee of the $5,000, the buyer needs to come with that funding. And we know for a fact that the buyers are now have one major issue.

Desmond Brown (18:32):

Exactly

Steve Tabrizi (18:32):

Coming up with the down payment. Now we are adding additional costs to it, so let's not break the system and the lawsuit in us, I love the headline, 1.8 billion with a cumulative of interest, if they lose it will be 5 billion. I can promise you this. This will go through five years court battle and at the end, the 5 billion end up being a couple of hundred billion dollars among different companies, different parties and consumers will not benefit from it. Even as of today. They said if it's settled today, 502,000 residents of the states that they signed for this class action shoe each, they get only $2,000. Yeah. So did we achieve anything? No,

Desmond Brown (19:15):

Not really. And we talk about making it affordable or actually able for a buyer to buy, like you said, coming up, if they're buying, let's use a million dollar house and if they have to come up with that extra $25,000 to pay their realtor like cash in hand, they're not going to be in the market like you said because they don't have that. But if it's siphoned through their purchase price or not siphoned through, but put through their purchase price and then the commission is paid that way through the purchase price that they pay, then they're able to actually take that step and buy a home. And I remember Steve back in the mid nineties when we actually first saw buyer agency. Do you remember back then this was one of the things that we worried about? Yeah, I remember that We worried about, oh, if we go in the buyer agency, where are the buyers going to get the money upfront to pay us? Right? Yeah, I remember that very clearly.

Steve Tabrizi (20:15):

In some sector of other industry, it does happen by the way.

Desmond Brown (20:18):

And commercially it happens a lot. They have the money

Steve Tabrizi (20:22):

Buyers, they pay for their buyer agent. Even in residential, we have cases that the buyers come to many of our realtor and says, I need certain areas, certain specific area, and I'll be more than happy to hire you and pay you for your services. Remember consumers got to remember hire professional demand list of services and there is a price tag attached to it and that price tag is negotiable, period. Simple

Desmond Brown (20:50):

As that. Yeah. And here in Toronto we generally see 2.5% for the cooperating broker, the buyer brokerage. I know I've been out in places outside, outside of Toronto where the actual commission going rate for a buyer brokerage is 2%, right? You see it two, two and a quarter percent. So the one thing about commissions, you talked about it being negotiable. When you see these news headlines, they always throw out 5%. There's always 5% and then a split, two and a half, two and a half. I was in management for your company, our company, I was in management, I saw the trade record sheets. And the trade record is what the agent submits after a deal is done and how the commission is split up or what the total commission is and then how the commission is split say this, but there are not a lot of agents that are still getting a full 5% and that's the business model.

(21:53):

Of course. Again, Steve, you're going to chime in on this, but the business model is is that it depends on, number one, the price of the property that we're selling. It depends on if we've sold another property to somebody because some of us give the sellers a deal on the commission if they've bought something else from us. So there are a lot of different things that come into play here and a lot of agents, when it comes down to negotiating at the last minute and nobody's budging, agents are throwing in commission to make the deals work.

Steve Tabrizi (22:21):

Yeah. I firmly believe when I go hire a lawyer, when I go hire an accountant, when I go see my dentist, we pay for the services that we receive. I look at it, turn the table around, you go book a hotel, you see all the reviews, you read all the reviews, you look at the images and then when you go to the hotel and you said, oh, I paid it 300 bucks a night. And then you open the door and you get disappointed with what you see. So you got to look consumers, they got to look at it. It's not about, oh my god, I paid someone 2% or two and a half percent or 5% and they do the multiplication and by a million dollars. They said, oh, they didn't do nothing and they made that money. I think the consumers really need to be educated that what is the cost of the running a business for a realtor? They're split their brokerage, that income tax, the listing agent goes through a series of the marketing staging repairs.

Desmond Brown (23:28):

thousands of dollars invested in listings

Steve Tabrizi (23:31):

Dollars. Yeah. So I do, as you know in our company, which is a very great sample of the industry, the 2000 agent and an agent like any other normal business realtors are entrepreneur who run a business, could be one individual, could be partner, could be team. We are talking about a profit margin of the 30% at the end of a fiscal year. So if consumers in their mind they're multiplying five deals times $20,000, they think, oh my god, the guy made a hundred thousand dollars doing nothing. Ladies and gentlemen, let me break the sad news to you. They'd be lucky they go home with 50,000. So that's the

Desmond Brown (24:23):

Reality, right? And having a good professional, and I work with so many of them and I consider myself one too. In the end it comes down to what will our marketing plan and our professionalism bring to our client in the end? And it usually results in a higher return for them. It really does. We get more money for our clients than somebody just posting it.

Steve Tabrizi (24:46):

Yeah, numbers. They don't lie sold to the listing ratio. Please. When you hire your realtor, take a look at they're sold to the listing ratio. Yes, you think you might save a percentage here there or money here there from one realtor versus another realtor. But what is matter at the end of the journey of this transaction is what is in your pocket. And if in your pocket you think by paying less, you achieve more. I can tell you 90% of the case is actually opposite. You end up actually making less because the realtor really has no motivation to really work harder to basically sell your property.

Desmond Brown (25:31):

So that leads us into the last segment we're going to cover right now, Steven that and that's the new rules that were introduced by the province of Ontario, the new trust in Real estate Act that started on December 1st. And I think one of the biggest changes that are in this act is that open bidding is now going to be allowed. However, the big question is the way this thing is set up, will the sellers opt for this? Will it actually happen? So let's go over that a little bit, Steve.

Steve Tabrizi (26:04):

So I think the biggest thing that was set up on this, and I'm very happy, is not open bid. The biggest thing that happened in this trip in Tressa is the representation. The Tressa came into the effect from the feedback of the consumers transparency, actual representation, and in a very competitive seller's market, they basically, particularly buyers, they were complaining about, I don't get a fair treatment in a transaction if I deal with the listing agent. So they remove that. The dual agency, even if it's a dual agency right now, what we call a designated representation, it's give the right to the buyers to have an actual representation, meaning the buyer agent will give them opinion advice versus information. Yes. The second biggest element on it is the open bidding. The sellers, they have an option during the offer or before the offer, giving instruction to their listing agent to conduct the offer in a different format, meaning share certain information of the other offer to the other parties or may not.

(27:25):

How do you think it's going to happen? Into my opinion, this is a model also that has been conducted in Australia for many, many years. But I think in a negotiation strategy, my personal opinion, why would I want to share the content of the other offers and information to all other parties? It's really disadvantage against the sellers if I don't practice real estate anymore, but I'm fully licensed, but I would not do that. The whole idea of the close bidding, let's be candid and honest with it. You get 10 offers. There are 12 or three people are highly motivated and they want that house. And because that's visualizing, that's their dream home for a variety of the reason, the school, the amenities, the size, whatever. There are four or five people in that 10 people race or have a certain constraint because of their financial abilities. And there are some people that they are just basically there because they're saying, if I can negotiate, get a better price, I'm there. So certain disclosure of the content by seller, it will not hurt anybody. But certainly the price disclosure to my opinion, will hurt the seller. Yes, you can disclose. I prefer July 31st closing. I preferred a hundred thousand dollars deposit. Your competition.

Desmond Brown (28:57):

Yeah, this one has a condition. Yours.

Steve Tabrizi (28:58):

Yeah, this one has a condition yours doesn't have, but I don't think so, to be honest with you. This one, I don't think so. It's going to be a big, big practice in Ontario. I don't think so. Ontario consumers are particularly sellers are quite educated because we've been in the market of the seller's market for almost 10 years and they see the benefit of the close bidding versus the open bidding.

Desmond Brown (29:30):

So I know in Australia they'll actually have the bidding, they'll choose, and I did a podcast with an Australian realtor where they actually choose one of the best features of the home. So if there's a swimming pool in the backyard, they'll have the auction in the backyard, over the swimming pool, whatever, and everybody sees what everyone else is or here sees and here is what everybody else is bidding. So in this particular case though, with what Ontario is introducing, the seller has the option to say, okay, I want to send all of these offers back and let everybody know what everybody else's offer is. However, we as a buyer agent, and it always depends, right? If I'm the seller's agent, I don't want to disclose, right? If I'm the buyer's agent, I would love to have everything disclosed so I know what's going on, right?

(30:18):

However, if I'm representing a buyer and the seller wants to disclose what's in my offer, I put in a clause now that says, if any of the details of my offer is disclosed of any of the competitors, my offer is null and void, I'm out. You can do that. But on the other hand, if your client really, really wants this property, see where we're caught, right? They're not going to want to pull out if it's something they've been waiting for a street, they've been waiting for a type of property, they've been waiting for a long, long time. We still have an inventory problem here, even though we have a much more higher listing inventory now, but we still have that problem.

Steve Tabrizi (31:01):

You just brought a good example. It could actually also work consumers out there, they think buyer particularly, they think the open bidding is in their favor. It could be actually against them too. You just brought a good example. Imagine a buyer has a hundred thousand dollars deposit, but there are other terms and conditions are very close to the other people. But the seller suddenly says, no, I like this offer because of the security aspect of it for a deposit. But imagine now the seller goes out there and disclose your entire offer and then somebody else which didn't have that security aspect, the assurance aspect of their prequalification, of their clients up their deposit. Now you as your buyer is out of the game. So I think this is needs additional, additional due diligence, additional practice. And unfortunately if anybody practice it, I really cautioned them to really have a system in place,

Desmond Brown (32:05):

A really good strategy and system for sure.

Steve Tabrizi (32:08):

Otherwise, otherwise it could go completely sideways.

Desmond Brown (32:12):

And with the type of market that we're in right now, we're not getting a lot of competition anyway. So just price the properties close to where you feel the market value is and somebody will come in and negotiate and everybody's happy at the end of the day. And Steve, I was so happy to have you on this podcast again, we've got to wrap up right now, and I wanted to thank you so much for coming along. Is there anything you'd like to add as we close down here?

Steve Tabrizi (32:38):

No, thank you very much for inviting me, but I look forward for 20 20, 24. I am confident that you will see the 2024 will rebound in 2024 and the mortgage rate even the fixed rate will definitely will drop to about 4 9 9 even possibly before the drop of the Bank of Canada. And there, that's the point. You will see the market healthy upwards. So we are in a good position in our market.

Desmond Brown (33:09):

There you go, the Steve Toeasy crystal ball Ed. It works every time. That's why I love having you here, Steve. Thank you very much again, Steve, and all the best. And let's see what happens over the next few months here in our market.

Steve Tabrizi (33:23):

Thank you very much. Have a wonderful holidays.

Desmond Brown (33:27):

And that's our latest episode of Sold in the 6ix. And as Steve Tabrizi says, it looks like we're going to have a great market next year, so don't be sitting on the sidelines or on the fence. Get in there if you really want to buy. The window is closing. And if you're thinking about selling, talk to your agent about negotiating the commission. It's all negotiable. And see what type of services they offer. And of course, you can always call me and be aware of the new Tresa rules, the new trust in real estate rules that are being introduced right now, actually since December 1st, they were introduced and see what you want to do when it comes to open bidding. Or maybe we'll just keep the close bidding thing going. Like usual. I'd like to thank my producer Doug Downs of Stories and Strategies for this latest podcast. And if you'd like it, please subscribe, leave a rating and of course send it to a friend. And to get in touch with me, you can email me @ desmondbrown.ca and also follow me on all of the social media platforms. Of course, my name is Des in the 6ix and it's number 6 ix. And if you're a realtor outside of Toronto, you need someone to look after your clients either moving to or from the greater Toronto area. Please keep me in mind. I promise I'll look after your clients. Until next time, I'm Desmond Brown.