Toronto Homes & Investment Properties Real Estate Agent

View Original

It’s 2009 Again!!

In case you have not noticed, Toronto’s real estate market has been on fire. And I mean everything: detached houses, semi-detached houses and now condos too!! Not to mention the 905 (suburban areas outside the city of Toronto).

You might be asking what on earth is driving this crazy real estate market? It feels like we are back in 2009 again. Here are a few reasons driving Toronto’s & suburb’s real estate markets:

  1. Historic Low Rates: Interest rates are artificially super low to stimulate the economy. Central banks have pumped billions of dollars to buffer the economic impact of the shutdowns. Homeowners and buyers accessing 5 year fixed and variable mortgages below 2% is “free money”. The low cost of borrowing makes it easier to cover the monthly obligations. Keep in mind, homeowners and buyers, have to qualify based on the benchmark rate which is in the high 4s.

  2. Increased Savings: Canadians savings rate is the second highest since the early 90s (source: https://betterdwelling.com/canadas-household-savings-rate-plummets-lower-after-government-supports-slow/). There is less money being spent on vacations, commuting to work, buying clothes, eating & going out. With increased savings, higher downpayments are available to buy homes or condos.

  3. 416 Flight: Some have opted for larger piece of land as they adapt to work from home. This is driving the strong buyers demand in the 905. Words of caution: What will happen when employers requires employees to come back to the office downtown?

  4. Condos Bottomed Out: After months of tenants and some owners fleeing the condo lifestyle, the central Toronto condo market bottomed out at the end of October with 4.77 months of inventory. Since then, buyers sitting on the sidelines have jumped back in sensing opportunity, having extra savings and low cost of borrowing .

5. Elasticity: This is something I have seen in Toronto’s real estate market. As detached and semi-detached house prices continue to appreciate, some buyers got priced out and choosing to stay in the city, drove that demand into the larger condos (2 bed, 2 bed + den) market. The gap between detached & semi-detached grew to a point where larger condos started to make sense. I have seen and been in multiple offers in that niche market since the New Year.

6. Supply Issues…Again? This might sound like a broken record, yes supply is not enough for the demand resulting in bidding wars and price appreciation well above inflation rate. With months of inventory well below 3 for detached, semi-detached and now condos, the market is in seller’s territory. It’s between 3-5 months of inventory where buyers negotiate, put offers with conditions (like the old days) and there is time to think about the deal. In January 2021, detached homes were at 1.45 MOI (months of inventory), semi-detached at 0.83 MOI and condos in central Toronto at 1.5 MOI. All figures are for Toronto based on TRREB data.

Where do we go from here?

Condo Rental Market: This market continues to be in the tenants’ favour with rents suppressed compared to pre-March 2019. Condo rentals will rebound when universities open up, offices downtown are open for business, immigrants come to Canada for jobs or as international students and travellers come to Toronto. This will only happen when…..you know, roll up your sleeve and get that jab. Till then…..condo investors need to be patient.

When Will This Market Slow Down?

Good question. Before I answer that one, what will happen when immigration resumes? Canada is targeting over 400,000 immigrants per year for the next 3 years (https://www.cicnews.com/2020/10/canada-to-release-2021-2023-immigration-levels-plan-1016133.html#gs.ug2al3)

More people equals higher demand for ownership and rentals!!

4 Things Can Slow House Prices

  1. Economic slowdown: I thought a pandemic would do that but apparently not

  2. Spike in interest rates: We are years away from rising interest rates. The amount of money the Federal government is printing, I mean borrowing, it is unlikely rates will spike. More like a tap on the brakes, 0.25% increase here and 0.25% increase there. Low rates are here for a long time.

  3. Mass Exodus: Well that happens when people lose jobs and move to other regions or cities for employment opportunities. I don’t see that happening in the city of Toronto which is the economic engine of the economy. Toronto has a very diverse economy, it is not reliant one or two sectors which is a good thing. If one sector goes down, there are multiple other sectors holding the local economy up. Diversification is good, right?

  4. Priced Out: Yup, that I see happening as prices will push buyers out of the market into the rental space. But….I’m not sure if that’s a large enough group that would impact the real estate market. Here is what I mean: If semi-detached houses are at 0.83 months of inventory in the city, the supply would have to quadruple or sales (demand) would have to be cut by 75% to get into balanced territory. How likely is that to happen?

What should you do?

If you are a seller, the real estate market is on your side. Declutter, paint, stage very well and list to attract multiple offers.

If you are a buyer, I’m sorry I don’t have lots of good news for you. Be decisive, be aggressive and time is not on your side. Every passing sale sets the benchmark for the next one. I know, it’s frustrating.

Last but not least, reach out and I’m happy to help you make an informed decision whether you are contemplating to sell, buy or both.

Till next time….