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How will Coronavirus affect Toronto Real Estate market?

With World Health Organization (WHO) officially declaring the coronavirus a global pandemic on March 11th many governments, including our own, have decided to take necessary precautions to keep the public as safe as possible. While no one can answer with certainty how the coronavirus will affect the GTA housing market, I believe that we can look at some clues and make a fairly accurate prediction.

The Greater Toronto Area real estate market is tied in large part to the economy, unemployment rates, interest rates & the need for housing. Let’s look at each of these factors in detail:

The economy

The economy will undoubtedly take a hit from the fallout of the coronavirus pandemic. How big of a hit the economy will take is the question? Scotiabank economists have predicted that Canada could be heading for a mild recession by the fourth quarter of 2020 without a fiscal stimulus. Typically, in times when there is a recession housing prices tend to go down.

Unemployment rates

Low unemployment rates in Ontario (5.6% in 2019, the lowest since 2000) have been one of the drivers for the real estate market over the last several decades. If a recession does occur, the unemployment rate will climb reducing the demand as the number of people able to afford buying into the market would diminish.

Interest rates

On March 4th, the Bank of Canada cut the interest rate by 50 points. On March 13th, it made another rate cut of 50 points reducing the rate to 0.75%. These moves taken to support the economy by easing the interest rates will help stimulate the real estate market. Lower interest rates mean lower mortgage payments and higher affordability.

The need for housing is still there

People still need a roof over their heads and Toronto is one of the most desirable places in the world to be. That’s not going to change with the coronavirus pandemic.

Stress test

The new stress test being rolled out in April of 2020 will also be a buoy for the GTA housing market as it relaxes the previous stress test that was put in place to slow down the market. The purpose of the stress test is to ensure that the mortgage borrowers would be able to afford their mortgage payments if the interest rates were to go up by a certain percentage… The new stress test reduces that additional percentage by about 30 basis points, thus increasing the number of people who would qualify for a mortgage.

Likely outcomes

While the slowdown in the economy and the possible increase in unemployment rates point to a possibility of a slower real estate market in the coming months; the lower interest rates, relaxed stress test and a strong need for housing would likely counteract that. As COVID-19 is starting to affect every element of our daily lives, we will most likely see a decline in buying activity through at least parts of the spring market, and maybe even going into the summer market.

Looking back, harsh economic periods can cause real estate markets to stall, but in the Toronto area there is a silver lining to this:

  • The current GTA real estate market is overheated sellers’ market, so
  • it has room to not stall,
  • but to adjust towards a balanced market.

As to how long that will take, we’ll just have to wait and see…

P.S.

You may also like this video interview with Phil Soper – Royal LePage CEO, on the Coronavirus outbreak affect on the Canadian Real Estate market.

Toronto Real Estate Review & Outlook Report 2018

Toronto Real Estate Roller-coaster ride

Toronto Real Estate was on the roller-coaster ride in 2017. Rapid price appreciation defined the market during the first 4 months of the year before buyer concerns over affordability prompted the Ontario government to introduce their 16-point ‘Fair Housing Plan’ in April. Following the introduction of new regulations, including a 15% tax on foreign buyers, market activity and price appreciation slowed significantly and the market shifted downwards as many took a wait-and-see approach to assess the long-term impact of the changes.

Toronto Real Estate Board (TREB) reported this month that detached house prices fell 3.9% in the city and 12.0% in the suburbs for a total of a 9.1% drop. Communities in York Region including Richmond Hill, Markham, and Aurora – that had the biggest price run-up from 2016 into 2017, have faced some of the biggest declines since the GTA housing market began a downturn last Summer, and the pressure is likely to continue into 2018. The average detached home price was still a whopping $970,823:

Toronto Real Estate Board - Market Watch - February 2018
This drop was mitigated by a rise in condo prices so the total for all home types was just a 4.1% year-over-year decline.

Real Estate trends in numbers

New 2018 OSFI mortgage underwriting rules (a.k.a ‘stress test’) are anticipated to further reduce home buyers’ purchasing power, which will continue to push families:

  1. out of the GTA,
  2. into the condos, or
  3. towards renting,

because affordability is expected to be the dominant concern in 2018.

1. Leaving the GTA

Much of the activity in regional markets across Ontario was fuelled by price appreciation in Toronto. As people are searching for the balance between the home features and affordability, many are looking outside of the Toronto Area. These “move-over buyers” leaving the GTA have contributed to increased demand & considerable year-over-year average price increases in:

  • Niagara (23%),
  • Barrie (19%),
  • Durham Region (19%),
  • London-St. Thomas (18%),
  • Hamilton-Burlington (15%),
  • Ottawa (9%), and
  • Kingston (8%).

2. Condos fueling the GTA market

Despite the low-rise price decreases in the GTA, prices remain out of reach for many buyers… which increases competition for the condo units… and drives condo prices up:

  • The average selling price for condominium apartments was up by 14.8% year-over-year this January to $507,492.

3. Renting getting more expensive

According to TREB’s last Rental Market Report, the average rent for a 1-bedroom condo in the GTA was up by 10.9% on an annual basis to $1,970 in Q4 2017. The average 2-bedroom condominium apartment rent was up by 8.8% over the same period to $2,627.

Toronto Real Estate Outlook

As we move into the Spring, expect the pace of home sales to pick up as the psychological impact of the ‘Fair Housing Plan’ starts to wane, and homebuyers find their footing relative to the new ‘Stress Test’ for mortgage approvals (through the Federally regulated lenders). With January 2018 sales being off last year’s record peak – it’s easy to forget that we still have a broader housing supply issue in the Greater Toronto Area.

Prospective homeowners may disagree, but industry players don’t feel Toronto is too expensive – certainly not in comparison to current world-class markets, including Vancouver. Most foresee continued immigration and investment, foreign and domestic, contributing to upward pressure on prices overall. And while there may be temporary price dips, no one should expect a major pullback in prices – barring an unexpected event that upsets the global economy, or a major change in government policy.

Resources

  1. PwC Canada – Trends in Canadian Real Estate 2018 www.pwc.com/ca/en/industries/real-estate/emerging-trends-in-real-estate-2018.html
  2. RBC Economic Research –
    Canadian Housing Reports www.rbc.com/economics
  3. RE/MAX – 2018 Housing Market
    Outlook blog.remax.ca/remax-2018-housing-market-outlook
  4. Toronto Real Estate Board – Market Year in Review & Outlook Report communications3.torontomls.net/auth2/mediafiles/Market-Year-in-Review/pdf/2018-YearInReview_interactive_2clm.pdf
  5. Toronto Real Estate Board – TREBNews Releases www.trebhome.com/market_news/release_market_updates/news.htm
  6. Jasmina ZivKovic Real Estate Team – News you can use www.facebook.com/ZivKovicTeam/posts

Global warming felt in Toronto Real Estate

Toronto Area Home prices keep increasing like temperatures in global warming, with no “cooling-off” in sight. Price increases make sellers feel great, but they are forcing home buyers to look for deals further and further out of the city core – new Toronto Real Estate Board (TREB) housing stats show that January 2015 to January 2016 home price index (HPI) has increased the most the further out you go of The City. This is especially true for singles, semis and townhouses, where there has been a persistent lack of inventory. Just look at this chart:


Plus, a recent survey conducted by Ipsos Canada finds that 12% of GTA households are seriously considering the purchase of a home in 2016, because they continue to see home ownership as an affordable long-term investment.

So, buckle in for another year of bidding wars and rising home prices…

Groundbreaking Report

All of this plus the 2016 Market Outlook, Homeowners & Homebuyer Surveys are covered in the 73-page report – just published by TREB. Another central aspect of this groundbreaking report examines the growth, continuity, livability and housing affordability of the GTA and the greater Golden Horseshoe region. TREB reached out to government leaders and other stakeholders from across the region to determine what needs to be improved to retain the region’s competitive position on the world stage. PDF format to download your copy.