Government Action and Market Reaction: What Will the Market Do?

The Toronto real estate market is a very hot topic these days. And when people talk about the market, the hottest topic of all is “What’s the government going to do to cool things down?” Well, it looks like we’re going to find out soon enough because the government is poised to introduce measures that will supposedly curb the market.

I don’t have any inside information about these measures. There are lots of possibilities, most of which I’m sure you’ve already heard. Things like a foreign buyer tax, a tax on vacant properties, interest rate increases and more. I’m not here to repeat what you’ve already heard or guess at what the government might do. I’m here to guess at how the market might behave after the government does what the government is going to do so you can plan accordingly.

From what I’ve read, it looks like the government will target speculators and not folks like you and me who just want to buy or sell a house. When I hear things like this my brain goes into question mode because they don’t make sense. For example, who exactly is a speculator? I think we could all agree that someone who lives in another country, buys numerous properties here and leaves them vacant with the hope of selling them when their prices increase is a speculator. But are you a speculator if you live here and buy a few properties to rent out until you either sell them to fund your retirement or leave them to your kids? What about if you buy the house next door for your aging parents so you can spend more time with them and give them more help?

But let’s leave those questions aside for now.  And let’s assume the government’s going to do something along the lines of what’s being discussed so we can focus on what’s going to happen to the market after the government does its thing. I’ll admit I don’t KNOW what’s going to happen. No one does. But I figure I can take an educated guess based on what I’ve seen happen over the past twenty-five years when the government’s tried to cool the market or when external events have affected the market. Experience does come in handy. So without further ado, this is what I think will happen, both short term and long term:

Short term

What can we expect to happen shortly after the government announces its changes? One of three things is likely to happen. First, there may be no effect at all except in certain segments of the market. Most buyers and sellers will go about their business as if nothing has happened and prices will continue to rise. An example of this would be the mortgage stress test the government introduced last year to try to cool the market. It may have affected a certain segment of the market, but on the whole prices have increased dramatically. Second, the market may take a brief pause. What do I mean by this? I mean some buyers and some sellers may put their plans on hold while they assess what’s going to happen. This has happened on occasion in the past when buyers said: “I’ll bet prices are going to fall. I’m going to hold off and wait to buy my house. Boy, what a stroke of luck! Am I ever going to get a good deal.” Sellers, on the other hand, have said: “Hmmm, I’m not sure where prices will go and I’m not desperate to sell so I’ll wait and see how things work out.” This could result in there being fewer buyers and fewer sellers, but there will still likely be sufficient numbers of both and a sufficiently high ratio of buyers to sellers for the market, and prices, to continue on course. And third, people may say “I’d better buy or sell my house before the new changes come into effect” with the result that the market will go into a brief frenzy before settling down to its previous level. These are some possible short term effects. There’s a fourth option, which would be that the market grinds to a halt and prices start to fall, but the government certainly doesn’t want this to happen so it’s highly unlikely to do anything which would make it happen.

Long term

Do I even need to say anything about the long term effects of past events, whether government or other? We all know that prices have continued to rise and rise and rise. Essentially, these events have had no long term effect on the real estate market. Why? It’s pretty simple. There’s way more demand than supply and people always need a place to live.

I expect the market will not be affected by the upcoming changes and prices will continue to rise. Even if there IS a short term pause during which some buyers and sellers put their plans on hold temporarily, which may not even occur, there’ll still be way more buyers than sellers. Eventually those buyers will say: “Alright. I’m tired of waiting. I want my new home so I’m ready to buy now.” And sellers will say: “I’m not desperate so I’m going to list my home at the same price I would’ve listed it before and see what happens. I won’t sell unless I get my price.” Not all buyers come back to the market at the same time and neither do all sellers, but there are still more buyers than sellers so sellers get their prices and the market continues on its merry way.

The government has good intentions, but needs to take very bold steps if it wants to control the Toronto real estate market. And if it does that, it’ll need to be ready for the backlash guaranteed to come when its actions negatively affect other sectors of the economy and the country because, as I said in What’s Wrong With This Market?, it’s impossible for the government to micro-manage the residential real estate market here in central Toronto.

So what should you do? Ignore the noise. If you want to buy a home, don’t sit on the sidelines waiting for a miracle that’ll never arrive. There’s too much demand for prices to plummet. There are always so few homes from which to choose that it already often takes a long time to find your dream home. What happens if your dream home hits the market while you’re on pause and your next dream home doesn’t appear for another year? You’ll have missed out on a great opportunity. Do yourself a favour and don’t sit on the sidelines waiting to see what happens. And if you’re selling, go ahead and sell your home.  There’ll undoubtedly be enough buyers to ensure you get a good price.

Of course, this is all conjecture (as opposed to speculation because I’m not a speculator, at least as far as I know, but this could change when we find out who the government considers to be a speculator). But if history is a teacher, this is what I’ve learned.

If you know anyone who is interested in learning how the market works and would like to receive the kind of help that involves honest answers, straightforward advice, no pressure and being treated like family, please let me know the best way for me to connect with them because I’d like to offer them this kind of help. And as always, don’t be shy if you have any questions or comments about this post! Thanks for reading.
Courtesy: http://michaelmeltzer.us6.list-manage1.com/track/click?u=9f41f8df23d377326dfd6ceaa&id=592120bf2b&e=fbeee15133

 

Loading Facebook Comments ...
No Comments

Post A Comment

Sign up for automatic property updates.

 

Join thousands of Torontonians who receive our automatic updates. Stop manually spending your time searching, we will send the properties that meet your criteria directly to your inbox.