Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.
This is an interesting question. In the current day as of November 2024 the Toronto Real Estate Market looks like it’s in of the best times to buy in decades. It’s been a buyers market for a few months and with rates coming down I don’t expect this to last much longer with signs pointing towards Spring 2025 being a sellers market again. But this begs the question, are you able to time the market? Many people say you shouldn’t bother trying, and honestly I mostly agree with that sentiment, especially with something like real estate that is an illiquid asset. If you plan a purchase or sale of real estate down to the day or week, your plan will likely fall apart pretty quickly. Real estate is unlike the stock market; where you can sell and find a buyer same day. You need to build in some timeline flexibility and think about an investment in real estate on the scale of decades and not just months or years.
However, even though we should be using long time horizons when thinking about any type of investing, is there a way to time the market? Now you know that since I’m writing a post about timing the market, my goal is likely to tell you that there is a way to do so. But that it’s not the only thing you should be considering when investing. Most people move and purchase new homes simply because their lives are changing in some significant way, maybe a child is on the way, a divorce is happening, aging (comes for everyone), or some other big shift has caused a homeowner to have to change their living situation. If this is you, and life is forcing you to make a change, there’s really not a lot to be gained from trying to time the market in search of a profit. But there is something to be lost with bad timing. I would suggest trying to time your move in such a way where you are buying and selling into similar market economics.
Essentially, try to time your move when things are relatively stable and there aren’t likely to be huge rate cuts or rate increases like we are seeing now. Many people sold in April 2020 after being laid off, simply to find that if they had decided to hold on just a few more months they may have been able to get much more money for their home. Of course sometimes a crisis is a crisis and there’s not much you can do. But selling during high volatility and then hoping to repurchase in a few months could lead to some nasty surprises. A real estate market can change very quickly. For example April 2020 was a buyers market and prices were plummeting while April 2021 was a sellers market and prices were going to the moon, just 1 year apart. People often forget that a house, while often their biggest asset, is also a place to live which can lead to different priorities than investors. The story if you’re a real estate investor can be quite different.
Investing in real estate for the purposes of turning a profit (as with any business venture) relies a bit more on timing than my discussion about a primary residence. For example, this past year was an absolute generational time to invest in real estate, so much inventory to choose from, many sellers willing to negotiate, if you throw in enough lowball offers some sellers were actually willing to bite, not a chance of doing that even a year ago. With rates coming down people will begin returning to the market relatively quickly, but there will still be a short period of time maybe a couple months with lots of supply available while people who have been waiting on the sidelines begin to realize that their buying power has improved significantly.
From a strategy point of view, I’ve been telling people to take open or variable rate mortgages for the past year or so because with inflation coming down steadily and the Bank of Canada making it clear that they will be cutting interest rates, taking a variable or open mortgage can allow an investor to get into a house, albeit maybe a bit heavy on the monthly payments when your first buy. But as rates come down you can lock in a much lower fixed rate, or even break your variable mortgage and pay the penalty when you think the time is right in order to get a significant discount on your monthly payment. It’s a bit of short-term pain that could pay off hugely.
I’m certain that there are investors out there who have been doing this exact strategy, and you’ll hear a lot about them in a year or two once they’ve locked in a lower rate and had their home equity increase like crazy with the return of the sellers market I’m expecting in 2025. This type of principle of buying when rates are high but anticipated to come down is not anything crazy fancy or sophisticated, you just need to have a plan of action, confidence that your projections will be correct (it helps if you read up on these things and know a bit about how markets and economies work) and have the means and people available to you in order to execute this kind of plan.
The layers of complication of real estate investing can go very deep and I’ve written some posts on the topic before, but I think that a lot of people overcomplicate things for themselves and get in their own way maybe due to uncertainty, or lack of education, or an information overload. Talk to investors, learn from them, and try doing it yourself. Learn, ask questions, do it yourself. Repeat. As with anything in life it is important to take calculated risks if you want to earn some kind of reward. If you think about it, spending 4 years (or more) of your life at a university is also a calculated risk, it costs lots of money and lots of time where you could have been working instead. But the thinking is that once you exit your university degree you will be more employable and be able to get a higher paying job than if you had the equivalent 4 year experience learning a trade or some other skill.
Real estate works the same way, the risk will likely have some kind of future pay off in 5+ years when you go to sell. Generally Canadian real estate purchased in good, growing areas has been worth the risk. In investing time is your best friend. The longer your time horizon, generally, the higher the likelihood that your investment will work out. Same goes for education, following the same example as before. In todays era everyone has a Bachelors Degree. So often you can’t do much with it and you’ll have to dedicate a further 2 years and more money in order to get your masters, at which point you may learn enough practical skills to be employable. Some people may even choose to do a PhD. So really the time commitment is quite a bit longer than it originally seemed, but the longer you commit to the concept of schooling, or holding your investment, the bigger the payoff tends to be. Real estate investing nowadays works in a similar way, the “arbitrage” opportunities of the market are much harder to find these days with the flow of information out there, and getting a positively cash flowing asset from the day you buy real estate just doesn’t happen anymore, so you have to build that into your plan and find a way to make the asset work for you. Not sure how I managed to draw a comparison between education and being a real estate investor, but I guess apples and oranges can in-fact be compared.
A general rule of thumb when you are buying an investment is buying with a 5+ year time horizon. If you’re buying something because you think that some event in the next week will make your penny stock take off and go to the moon, you’ve been sadly misled and will likely have to learn some lessons the hard way (like I did). Real estate works similarly; there have been times in the Toronto real estate market if you bought and then sold 2 or 3 years later you would have lost money. But if you take almost any 10-year time period in the history of the Toronto real estate market. Even if you bought at what was thought to be the absolute highest peak in history and you feel like an absolute idiot for doing so, 10 years later, without fail, you will have made a positive return on investment (the US stock market tells a similar story).
The elephant in the room is inflation, so even if you “made money” it’s possible that on inflation adjusted terms you still lost money, but even that scenario is EXTREMELY unlikely in a 10-year time horizon. BUY AND HOLD. The most important 3 words in investing. Do whatever you possibly can to avoid selling an asset that is expected to make you money. Especially if you’re trading it for something (like a car) that will cost you money. Obviously there are times where selling an investment is a good idea. Such as if you find another, better investing opportunity.
As mentioned a bit earlier, this post isn’t going to have any earth shattering, super secret, never heard before method of investing. This post is more about the philosophy that I believe in when it comes to investing. One of the most important principles that people often forget about when investing and budgeting is “pay yourself first”. The first line in your budget MUST be savings. If you are not saving a penny from your work, no matter how prestigious or not the work is, one day you’ll get old and maybe want to, at the very least, work a bit less. The only way that I’m aware of maintaining a lifestyle without working is by very diligently saving and investing, you must be selfish for the good of your future self. I am genuinely scared for people who spend everything they make, especially when it’s just “stuff”. Who cares about the car you drive, or what brands of clothes you wear. If you’re spending all your money to keep up an image you can’t afford, you may have slightly nicer things for a while, but you’ll end up in the same place as the next guy, broke.
I think sometimes my views on this savings thing are a bit extreme and there is something to an abundance mindset and viewing money as something fluid and obtainable. But there’s also truth to a dollar saved is a dollar earned and being prudent while you have the ability to work and save money, to ensure that saving is something you’re prioritizing, the time when you’ll probably be spending the most money is when you’re old, getting old is expensive. That being said, you don’t have to completely deprive yourself of fun and joy, just find ways to do it cheaply, honestly camping, hiking, and backpacking have been some of the best experiences of my life. This summer I finally took a bit of money and went on a vacation, which I’ll remember forever, it was absolutely incredible. But I still did it without breaking the bank. Hostels, discount airlines, grocery stores, no buying souvenirs that end up desolate in a box somewhere a year later. Took lots of pictures on the phone I already own (free!), went to free attractions, used and abused student discounts. You can have amazing experiences, without breaking the bank and still save aggressively. As another example, lets say you’re going out somewhere downtown, why not pick up some drinks from the liquor store beforehand, drink at home then go out so you don’t have to buy out the whole bar when you get there. Then wake up the next morning regretting your choices and come home with a $100 on top of it. Naturally, the best way to save money on alcohol is to not drink alcohol, but I’m not here to ruin your fun.
My last bit of investing advice is the classic, buy when other people are selling and sell when times are good, that is the wisdom of the markets. When times are good it’s easy to think they’ll last forever, if you plan to hold on for decades the best advice is to not touch your investments at all. If you are slightly more active and want to be smart about when to allocate funds it’s not a bad idea to increase cash (sell) as markets are going up so you can take advantage of those opportunities in a down market. Another method to have gain access to more opportunities is to simply keep your expenses very low, and find a way to make a (comparatively) high income so that you have good “cash flow”. I’m not a fan of ever selling investments, so if you’re able to keep buying in any market, you’ll generally be a net winner. However, as I’m learning, anything that results in a good income also comes with a lot of stress and hard work. Being successful is not easy, don’t let the internet and stories of people hitting it big make you think it’s easy. There’s always a component of luck, but there’s also a much bigger component of being opportunistic and taking full advantage of an opportunity when maybe an average person would let it slip. 95% execution 5% luck, getting that much luck is a great ratio. Anyway, that’s all I have time for this week hope you found this insight into how I think interesting or useful. As always thank you for reading and remember.
Keep Investing,
-Oliver
Newsletter #25: Real Estate Returns, Should You Time Markets?
This Weeks Blog Post:
Can You Time the Markets?:
- Should you bother timing the market? The answer is: it depends.
- My philosophy on saving money and investing and why you should always be saving.
- Talk about market wisdom and how time is your best friend in investing.
Read the full article here: https://oliverfoote.ca/can-you-time-the-markets/
Real Estate Market Talk:
Greater Toronto Area home sales have picked-up this past October with a strong year-over year increase. There were 6,658 home sales through TRREB’s System in October 2024, up by 44.4% per cent compared to 4,611 sales reported in October 2023. The pace of which homes are selling also increased with inventory levels of available homes for sale of all types dropping to 3.5 months from just over 5. This is a significant drop as the market is now trending back towards a sellers market.
Even with the pace at which homes are selling, prices remained relatively flat, up only 1.1% compared to October of last year to $1,135,215 and up slightly compared to this past September. The numbers tell us that it appears more buyers have moved off the sidelines and back into the marketplace in October. The positive affordability brought about by lower borrowing costs and relatively flat home prices, prompted an improvement in market activity.
Chief Market Analyst for the Toronto Regional Real Estate Board, Jason Mercer, reported that market conditions did tighten in October but there is still a lot of inventory, over 24,400 of available homes of all types, and therefore providing choice for home buyers. This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed, selling price growth will accelerate, most likely as we move through the spring of 2025.
The condominium market also saw a rebound in October with sales up 33% across the GTA compared to October 2023. Prices, however, still softened slightly, down 2% respectively. With the completion of a large number of new construction units over the next couple of years, prices are expected to stay relatively flat for the time being.
Please never hesitate to reach out to me with any of your real estate related questions, I am here to help. Enjoy the fall season and I look forward to connecting with you soon.
Stock Market Performance as of Friday November 8, 2024:
S&P 500: 5,995.54 (+26.41% YTD)
NASDAQ: 19,286.78 (+30.62% YTD)
S&P/TSX Composite: 24,759.40 (+18.62% YTD)
Macroeconomics Statistics:
Canada’s CPI Inflation Sep 2024: 1.6% (0.4% Decrease from August 2024)
Current BoC Benchmark Interest Rate: 3.75% (0.5% Decrease on Oct 23, 2024)
Unemployment Rate August 2024: 6.6% (0.2% Increase from July 2024)
Greater Toronto Area (GTA) Real Estate Stats – October 2024:
YTD Average Selling Price: $1,121,871
YTD % Change in Average Selling Price: -1.0%
Y-o-Y (comparing Octobers) % Change in Average Selling Price: +1.1%
YTD Number of MLS Sales: 58,435
YTD % Change in MLS Sales: +0.1%
Number of MLS Sales in October: 6,658
Y-o-Y (comparing Octobers) % Change in MLS Sales: +44.4%
Number of Active Listings in October: 24,481
Y-o-Y (comparing Octobers) % Change in Active Listings: +25.3%
Inventory Available: 3.5 Months (Decrease from 5.0 Months in Sept 2024)
Hope you have an amazing week! Chat soon!
Keep Investing,
Oliver Foote
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