What drove real estate to record highs in 2022, and what is the outlook from here? For answers, clients and friends of Cumberland were recently treated to a fascinating presentation by Steve Tabrizi, Chief Operating Officer and partner at the RE/MAX Hallmark Group of Companies.

Tabrizi has a truly unique perspective on Canadian housing, with nearly three decades of real estate investment experience, and as a driving force behind the largest independent RE/MAX operation in the world, with over 1,800 agents working out of 78 offices. The last time he visited Cumberland, in 2019, he delivered remarks that proved remarkably prescient.

Among those remarks was the idea that, as Toronto becomes the “New York City of Canada,” the affordability picture may change permanently, meaning not everybody will be able to attain home ownership in the city, as is already the case in Manhattan and many European cities too.

However, during the pandemic, a confluence of factors came to bear: interest rates so low that money was essentially “free,” and a window of time when many had more mobility due to working from home and more disposable income from curtailed travel and discretionary spending, plus COVID stimulus.

The result was a burst in real estate activity as younger buyers in particular seized what many saw as a once-in-a-lifetime opportunity to purchase homes – some in the city, many pushed by rising prices to a 100km radius of the city, and a surprising amount even extending themselves to buy cottages.

Where we stand now

Today, on the other side of pandemic lock-downs and with interest rates suddenly much higher, media headlines are crowing about the potential for a “historic real estate correction,” but Tabrizi warns against such hyperbole.

Yes, some prices are down year to date, but most regions are still up versus 2021, and any prudent analysis should consider at least a three-year time window. Tabrizi provided further data demonstrating that the current market favours neither buyers nor sellers, and is balanced in terms of the amount of available inventory and the number of sales versus the number of listings.

Looking forward, Tabrizi touched on a few key trends at play:

Interest rates
“If the Bank of Canada pushes interest rates above the neutral zone (estimated at 3-4% based on given historical levels), it will cause a recession. Housing affordability issues will persist either way, because high prices and high interest rates both reduce affordability.”

Inflation
“Inflation pressure really took off in March, and we will probably go for a 15-month cycle, meaning by next September we will see inflation probably sitting at in and around 4-4.5%. This should set the stage for further engagement of the market.”

Investors
“Investors, defined as Canadians who own more than one property, mostly resident in Canada but not exclusively) own more than a third of homes built after 2016. They own 1-in-5 homes overall, and 1-in-3 new homes. These multi-property owners are growing and are closely monitoring the shift of the market saying that ‘In February I was paying for the downtown detached home in Riverdale $1.5 or $1.7 million and now I can buy it for $1.2 million.’ So a number of them are doubling down and actually increasing their investments. Some expect to do so later.

Tabrizi sees a strong employment picture, growing immigration, and a Canadian economy with significantly less housing units per capita than any G7 country. In other words, despite some short-term uncertainty, the fundamental supply/demand picture remains favorable for real estate over any reasonable period of time.

Over the course of the presentation, Tabrizi shared so many interesting stories and noteworthy data points, it’s difficult to capture them all.

If you’d like to learn more, please contact us so we can share a variety of the information he provided us. Thanks Steve!