It's no question that 2020 will go down in books as a world-rattling, dynamic-shifting and just plainly unprecedented year. The pandemic has lead to major global market transformations, be it positive or downward-facing. We have seen, and continue to see, the ripples of its effects throughout many industries, one being real estate. Taking a look at our local real estate market here in Toronto, tells a story of peaks and valleys, unexpected changes and altered decision-making patterns.
In this article we are taking a look back, a literal hindsight 2020, to cover the main changes and shifts that we saw affect real estate in Toronto.
Condominium Rental Prices Dropped.
You don't need to be a real estate connoisseur to know that rent in Toronto, at least prior to 2020, comes at a hefty price-tag. Rental prices had been climbing high for quite some time; in conjunction with limited supply and overflowing demand, it's easy to say that renting in Toronto was almost impossible without some sacrifice.
Cue our 2020 POV (point of view): city and province-wide lockdowns shifted employees to work from home, travel restrictions held off immigration, and universities went virtual, leading to the largest downfall of demand for homes the city has ever seen. The Condominium Rental market, which was hit the hardest in 2020, had seemed invincible only months before. At the start of the year, we saw average rental price at a steep $2,600/month, which then slowly dropped over the course of the year to $2,000/month - a ~25% drop over a mere 10 months.
Looking at the Condominium Rental market with a wide lens tells a simple equation: "pandemic hits, prices drop". While that is soundly deduced, we aim to give you a closer look at things so that the intricacies of the market's domino-like structure become clearer. For example, it's worth mentioning that short term rentals played a substantial part in the rental market prior to the pandemic. "Pandemic hits = prices drop" can then be further dissected as
"pandemic hits = less travel, more hygiene concerns, less socializing = less demand for AirBnBs and short-term rentals = more rental units are empty = high supply = low demand = rental prices drop".
Having covered, in a nutshell, the course of events for the Toronto Condominium Rental market in 2020, we can start to predict how things might transpire. What we expect to happen over the next year will highly depend on the three factors we mentioned: the province's travel restrictions, employers opening up their office doors, and universities going back to in-person learning. These factors can be viewed as the strongest drivers behind rental demand in a city like Toronto. If the city could make its way back to the "old normal", then we can expect the rental demand characteristics of the years prior to 2020 to slowly resurface.
Number of Condominiums listed For Sale Reached an All-Time-High.
Similar to hardly being able to secure a rental condo to your liking, buying a condo in Toronto came with its own set of road-bumps before 2020. Prior to 2020, demand was so high that condos would sell extremely fast, making the number of condos for sale rather low. Supply was scarce and options were notably limited.
Fast-forward to 2020: the number of condominiums listed for sale climbed to an all-time-high, creating much more supply and giving buyers the perk of having options to choose from.
To arrive at how this happened we, again, must take a closer look. We know that rental demand for condominiums dropped to an all-time-low and vacancy rates climbed higher. People who depended on renting out their units for income were now left with un-rentable properties. Not being able to rent out your property meant that your expenses (mortgage, maintenance fees, bills) must now come out of pocket. That, combined with job loss, meant that income was slashed for many people - it's safe to say that a lot of Torontonians had no option but to sell.
Another factor to consider is that, for some people, the desire to move to a larger space became more adamant after lockdowns and work-from-home measures. Wanting to buy a property with more square-footage and more outdoor space meant having to sell your current home in order to buy a new one. Naturally, this played a part in causing the number of condos listed for sale to rise.
The number of condominiums listed for sale on the TRREB MLS reached a high of 7,253 active listings in September 2020 - that's a 118% increase in active condo listings from the same month last year (3,327 active listings in September 2019).
Looking back can only help us predict the future trajectory of condo listings for sale in Toronto. Buyer demand can be expected to eventually make its way back up throughout 2021, considering pandemic-related restrictions start to ease up. We can also hope that the high supply coupled with historically low mortgage rates will slowly but surely attract more buyers.
Condominium Prices Started to Take a Hit.
Much like the pattern we saw with condominium rentals, sale prices started to take a hit. With an increased number of condos listed for sale, more and more options became available for buyers to choose from. As a result, buyers started gaining more authority and more negotiating power, which drove prices down.
Although this did cause condos to sell, on average, at lower prices, the hit was definitely not as bad as that of the rental market's. We started to see condo list prices (the price you list your condo to sell for) go lower - which was an indication of desperation to sell quicker. In some cases, the desirable list price would attract more than one buyer and create a multiple offer situation, similar to what we used to see in pre-pandemic days.
Prior to March 2020, condominium listings were in high demand - selling over the list price was the norm in downtown Toronto. Today's market may look completely different but with the average condo price in the Greater Toronto Area at $600,840, we expect that most first-time home buyers and millennials will be forced back into the condominium market.
When it comes to home ownership, the high price point of freehold homes (houses) makes owning them increasingly difficult. The demand for freehold continues to rise, which means their prices will remain unattainable for many people. This could cause prospective home-buyers to settle for condominiums instead, which might then balance out the demand for condos again.
Demand for Freeholds Went Up
At this point, it becomes clear that the different factors and changes we have discussed are incredibly intertwined. Building onto that, we can deduce that the increased desire for larger spaces with outdoor access has caused an uptick in demand for houses (freehold homes) and, in turn, an increase in their price.
In the 2020 ecosystem - synonymous with phrases like work-from-home, social distancing, and stay-at-home - more and more people became understandably aware of the importance of making at-home life more bearable or enjoyable. This resulted in Torontonians wanting to move out of the city and into larger spaces, which made freehold properties (such as detached, semi-detached, and townhomes) a hot commodity.
To put things into numbers, in December 2020 average prices for freehold properties on the TRREB MLS were as follows: $1,240,632 for detached (+17.7% from 2019) , $939,660 for semi-detached (+16.6% from 2019) , and $768,474 for townhouses (+14.1% from 2019) . That means that for the average condo dweller to move into a house, they would have to spend 25% to 110% more to afford any type of freehold home.
While we are hoping that pandemic-related restrictions will start to ease up towards in 2021, it's safe to say that demand for freehold homes will most likely maintain its height. Closures and lockdowns are not completely beyond us, and, for some people, the agony of staying at home is still a fresh wound. Those who already own freehold properties will most likely hang on to them, meaning that we can predict more limited supply of freehold properties on the market. This will only continue to drive up demand as well as prices of freehold properties in the coming year or so.
Mortgage Rates Reached All Time Lows
It goes without saying that everything we've touched on thus far is undeniably connected to mortgage rates. With bland economic activity and harder all-around circumstances, buying a home was no easy feat in 2020 - not by a long shot. This called for some positive stimulation in the form of lower mortgage rates.
To adjust to the unsettling economic climate, mortgage rates started dropping in the first half of 2020 and continued to plummet towards an all-time-low. With efforts to maintain movement in the real estate market, lowered mortgage rates were meant to push for "a good time to buy". Mortgage rates are usually overlooked when making the decision to buy a home but now, while they're still low, truly is a good time to buy.
Since we can assume that mortgage rates are somewhat pegged to the overall state of the market, we can expect that they will go back up and stabilize as demand slowly rises. Mortgage rates have dropped to historically low lows in 2020 and there's not much lower they can go. If you are in a position to buy, now would be a good time to secure an attractive mortgage rate. That's not to say that 2021 will see high mortgage rates, but it's expected that they might rise.
In summary, here are the major take-aways from the Toronto Real Estate Market in 2020:
- Decreased rental demand caused investors to reconsider holding their condominium investments.
- A increased supply of condominiums provided buyers with more leverage in negotiations, causing prices to slowly slide downwards.
- As people started to seek more living/working space, freehold home prices held a steady pace of appreciation.
- We saw low mortgage rates, high house prices and attractive condo prices - we can expect demand for condominiums to make a comeback sometime close to spring of 2021.
- While this all might seem overwhelming and discouraging, it's nothing we haven't seen before. The integrity of real estate stands true to the test of time, meaning that after the valley there comes a peak - it's just a matter of time.