TORONTO-MARKET-OUTLOOK

Toronto Real Estate Market Outlook // May 2020

Last Modified: October 26, 2020

Time for a mid-May update. My clients come to me to see what is happening in the trenches of real estate. I will also answer some burning questions below. Starting with some macro-level trends and specifically focusing on the Toronto market.

I have been collecting information and keeping in touch with industry experts to get a more concrete outlook. As we have now been under lock down for two long months, with what appears to be an end in sight (or new normal they say?).

Macro-economic trends and outlook

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Source: CIBC, Benjamin Tal (Chief Economist, world markets)

The figures on job loss, although not final as we are not out of pandemic, of total jobs lost:

  •  47% were low paying jobs
  • 35% were part-time jobs
  • 18% were high paying jobs

As the crude adage goes, most of those individuals with low paying jobs were not in the real estate market for the last few years to begin with, but will have a noticeable impact on rents.

Globally, a crisis like this is typically a trend accelerator – De-globalization was already occurring in some segments. This will extend further as more pharmaceutical manufacturing and high tech manufacturing will be returning home. If governments can capitalize on this opportunity, regular non-essential consumer goods – like clothing – will continue to be made in Asia.

Canada has signed trade agreements after Trump administration NAFTA disputes with 40+ countries worldwide to diversify our export markets and become less dependent on the US. There is no coordinated monetary policy among G7 countries, with most acting in “self-preservation” – I see this as a big contributor to the trend going forward bringing manufacturing home.

What is the future outlook for the Toronto real estate market?

There are two main fundamentals, supply and demand.  We can start to paint a picture on pricing understanding both, as these dynamics have determined price and further focused by submarket.

Supply-side: 2020 was supposed to see a record number of new completions in 2020 for Toronto Metro. That has dropped significantly down to ~18,000 (target was 30,000) due to COVID-19, which will drop and keep supply down.

Right now with demand stifled by lockdown, and many buyers waiting on the sidelines – it will be likely that sellers will rush to market before buyers as restrictions ease – theoretically: this increase in supply without exceeding demand will have downward pressure on pricing, but NO freefall as fundamentals remain strong.

This is in theory however, as i said before – some price points and submarkets are more resilient than others. Year-over-year prices are still up, albeit not as high as they would be.

My take on this: limited sample size data. Skewed by casualties in the high-end market where there is a mismatch in supply and demand. Strong resilience in entry-level price brackets in most segments. 2021 will see resuming of housing price trends to previous levels, with pent-up demand, as I touched on before: fundamentals remain strong.

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On the demand side, the largest macro-level trend is immigration.

Non-Permanent resident immigration levels will take a bigger hit, this has a noticeable impact on the rental market.

Even in recession years, international migrants continued to trend upward. The government is going to pump immigration hard. We spoke with a prominent immigration lawyer in Ontario and we know that the government is looking to bring over one million new permanent residents from now until 2022, actively sourcing those in IT, tech, and specialized trades as our country (especially Toronto) continues to be a leader in the field in North America.

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The current state of the market in Toronto

Real time market activity, in the past – has been tough to measure.

BrokerBay has become the defacto front-desk software. Most websites out there give us sales and listing data, but BrokerBay is the authority on showings and offer registration data – very good indicators of market activity, or as I like to call it “the front lines” of real estate.

Are buyers out there right now during a pandemic? Let’s check the showing data:

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We have been seeing a ramp-up in terms of showings since the peak of the pandemic in mid-March when the brakes were put on the market as lockdown measures were brought in.

We’re seeing a gradual increase, a positive trend. Still down from the high’s of early 2020 (and what a hot market it was).

What does this mean for pricing? Time and time again we see people erroneously correlating “sales” with “price”. Showings down is reflective of the fact sales are down. But prices have not fallen in line with the drop in sales (believe me – you would have heard about a 70% drop in pricing in under 3 months). Quite the contrary – entry-level pricing in both condos and homes has been very resilient.

If there has been a haircut in pricing due to lack of showings, I don’t predict it going much further as activity ramps up (as indicated)

Zooming in – looking at showings in the last 30 days

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I hate watching the market normally on a month-to-month basis. Right now it is relevant to see the trajectory of activity in the market and if we will be hitting a Spring market mid-summer. Showings more than doubling in the past two weeks.

Here is a snapshot of  April 6th to April 12th vs. May 4th to May 10th

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3x up, month-over-month.

All-in: the showings are up 149%, according to BrokerBay. Offer registrations are also up by 158% as well

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Now, if we want to look at the time period of May 6th to May 12th and simply compare week-over-week, we see the same trend.

Showings are up substantially every single day, minus Mother’s Day of course – as that is an annually slow day for the market. A 26.1% increase in showings, week-over-week.

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Closing thoughts: Buyer’s market? or Seller’s Market?

When I advise people on a real estate purchase, I advise they need a 5-year plan minimum. Based on the average amount of time a condo-owner lives in the unit, even further for homeowners – i.e. 10-year plan.

Since real estate is such a long term hold, and market fundamentals remaining strong in Ontario – with a strong future outlook on immigration (I feel Canada will be an even more desired destination post-COVID) and supply levels continuing to be constrained below balanced levels – there will be a return, but likely not until 2021.

In a nutshell: real estate is still an excellent investment. If your expectations are in line with reality and you want to turn a quick buck – stocks are for you.

That being said, it has been a seller’s market in Toronto for a decade and it will eventually return to such until we see dynamics change.

I have a helpful mantra to my buyer clients – Never let a good crisis go to waste. If you have a steady job, and are well-positioned financially – you will find yourself in the best position of leverage we have ever seen for Toronto homebuyers.

Questions, Concerns? My door is always open. Check out Precondo for more topics like this one.

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