As I approach my 25th year selling Beach real estate, I reflect on the myriad of changes the real estate industry has witnessed through the years, especially with the use of the internet to help market properties. The Multiple Listing System is barely recognizable from just two decades ago, in step with many facets of modern society. The rapid advance in information technology is astounding, changing and improving the manner and mechanisms in which real estate is bought and sold, marketed and revealed to the masses.
The age-old process of an exchange between buyer and seller of a written paper contract is still paramount to the actual buying and selling process, regardless of how that paperwork is exchanged between parties. Although the registration of the transaction is digital, and the actual exchange of funds usually electronic in nature, the paperless society is still but science-fiction when it comes to real estate.
That exchange of signed papers between buyer and seller, the written offer and the signed acceptance of that offer, is one founding principle of real estate.
Another principle is the value of a property, and the relative nature of its value. Value can be objective, as with income properties. But in most cases, it’s subjective. Subjective value is created and exists only in the mind of potential buyers, sellers, owners and users of real estate. It is the price that people will pay for a property. Its value is measured in present worth and future benefits of its ownership. This is a principle of real estate that has been very much in play over the last decade, especially in the Beach.
Combined with an environment of ultra-low interest rates, this principle of value is more often than not the driving force behind the rapid and sustained increase in Beach property values, especially since 2008.
This subjective principle of value can be viewed in many ways. One of the most commonly held views, and one which real estate values have always been aligned with, is the notion that location is everything in real estate. I’m sure you’ve heard the mantra “location, location, location.” The Beach is definitely a great location within the City of Toronto, and our neighbourhood’s overall property values reflect that principal. Yet, there has been a change over the last decade, and especially in the last several years, to that mantra and principle. It seems some buyers are instead looking at just location, and forgetting about (or not caring about) the last two words of that mantra. That is to say, increasingly it appears some buyers are not being careful to buy into a better location in the Beach, even if the value of the property they purchased might have landed them in a better Beach location, albeit perhaps not as good a home.
Homes can be replaced, but location cannot. Every neighbourhood has locations that are viewed to be superior to others within that same neighbourhood, and I understand that location is viewed differently by every buyer and seller. Wants and needs such as school districts, commute times and employment, and a vast array of other attributes may be more significant to one buyer than another.
My theme here is that with interest rates still hovering at historic lows, some Beach buyers are simply paying too much money for houses in locations that just don’t support those hefty sale prices, in my opinion. And the final value of that property in a certain Beach location is in the buyer’s sole opinion as well. And that’s the nature of value. I don’t know if, and more specifically how much Beach property values are going to continue to increase in the long term. They will and should, as long as cheap mortgages remain.
But I do know (and I don’t believe anyone can argue this point) that eventually interest rates will increase. Maybe not in a year or two, but they will go back up to what we may refer to as more normal rates. And that will change this real estate market, because this market, especially since 2008, isn’t a normal one based on the trends of the last five or six decades. When the rates do get nearer to normal, sales will slow, which will result in larger inventories of homes, and more choice for buyers. More inventory usually results in downward pressure on property prices. When the market returns to normal, the old standby principle of “location, location, location” will once again contain three words, not just one or two. Those buyers who choose now to abbreviate that principle, and who may eventually want to change to a better location, will also see their home values abbreviated compared to other buyer’s homes who choose now to follow that tried and true principle.
If you have any questions or comments on this article, or Beach real estate in general, email me at tneal@trebnet.com. Or call my office at 416-690-5100. Take care!
Thomas Neal is a well-known and respected local Beach agent Real Estate …Beach Wise
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