As the COVID pandemic continued to impact the economy in May, activity in the housing market continued but at a much different pace than the year before. Signs of life returned to Toronto’s housing market in an encouraging turnaround in the month of May. Back to almost half the number of transactions normal to May. Still not a banner month for Toronto area real estate, but it was better in nearly every way than April, suggesting that the market may be starting to look past COVID-19 and all its implications.
Home sales in the Greater Toronto Area (GTA) last month were down 53.7% compared to May 2019. While the number of sales was down substantially on a year-over-year basis due to the continued impact of COVID-19, the decline was less than the 67.1% year-over-year decline reported for April 2020.
So, with sales down, why are prices not heading down too?
The answer is that listings – both ‘new’ and ‘active’ listings – what buyers have to choose from are down. Sellers are either not interested in entering this market and for sure they are not interested in lowering their prices. The market has not seen panic selling as most feared and anticipated which is a good news story for the housing market overall.
Interestingly, the declines in both supply and demand as well as the global pandemic have had little impact on inflating home prices. Despite these factors, the average selling price for all home types combined climbed by 3% year-over-year to $863,599, and up 4.6% from April last month.
The Toronto Real Estate Board predicts that if current market conditions are sustained during the gradual reopening of the GTA economy, a moderate pace of year-over-year price growth could continue as we move through the spring and summer months.
When looking at the prices within the different segments of the market, the average price of a detached home in Toronto rose 2.7% to $1.42 million in May.
Condos also continued to see price gains, with the average price increasing 6% across the region to $625,445, while condo prices in Toronto, on average, rose 5% to $674,028.
The industry quickly evolved and leveraged technology to adopt a virtual tour showing process as the predominant way of showing properties over the month of May. This was done across the board for home and condo sales and rentals.
The spike in activity in May was also a result of the home buyer becoming more comfortable going out and visiting properties for showings. Hand sanitizers, masks and gloves and completing disclosure forms related to COVID-19 prior to showings are all mandatory. Overall, the home buying process has become more efficient as buyers only visit properties that are on their short list.
Today’s market conditions are favourable to the first-time homebuyer who may finally have the chance to get into Toronto’s heated housing market – but not for too long. We have seen heightened activity amongst this segment which is most likely affordability related. First-time home buyers see that they may be able to buy a home at a price they didn’t think possible before as recent as February 2020. Also, there are less number of buyers in the market today which reduces the competition in number of offers. Mortgage brokers have reported a surge in inquiries and issuance of pre-approvals for the first-time home buyer who would like to take advantage of the low interest rates.
It has to be the strangest time for such an announcement in current times,however, this past week, the CMHC Canada’s housing agency announced that it will be tightening rules to make it more difficult for higher-risk borrowers to qualify for mortgage insurance.
What impact will this have?
First-time home buyers will be impacted who now will borrow about 12% less. This will be detrimental for this segment pushing them further away from home ownership forcing them to remain as renters until their incomes rise or prices may drop – the latter takes a long time.
What would I tell buyers?
First-time buyers with the minimum downpayment let’s hustle and get you in the market !
Will these encouraging signs continue for the rest of the year?
Toronto remains the hardest hit in terms of YOY quantity of sales. The key to recovery will be bringing additional inventory. Tight supply has always been Toronto’s real estate story – there has been a shortage of homes available for sale coming into crisis and unfortunately, that has not changed with limited supply on the market at the moment.
On June 5, Canada’s housing agency CMHC announced that its tightening rules to make it more difficult for higher-risk borrowers to qualify for mortgage insurance.
Condos for rent have been the hardest hit segment of the real estate market. Because of the pandemic, immigration has dropped significantly that has conventionally been a key source of rental demand. It is highly likely that colleges and universities may continue virtual learning in the fall, keeping students home with mom and dad. And given the significant job losses, renters have been disproportionately affected relative to homeowners, which could sway them from leaving rent-controlled units or getting into the rental market at all.
There are several reasons why rents have been quick to fall. The surge in unemployment has most affected low-wage earners, who typically rent, and few people will commit to a new property if they are unable to view it in person. Moreover, immigration has all but stopped and the halting of tourism has caused a slump in demand for short-term rentals, so these landlords are now targeting the longer-term rental market instead.
The number of short-term rental units that could return to the Toronto market, at 7,900, is already more than the number of vacant units at the start of the year. Toronto’s population was previously growing at an average of 12,000 per month with immigration. Toronto rental vacancy rate could jump significantly by the end of the summer, if departing university students are not replaced by a new cohort as teaching increasingly moves online.
In April, new listings of furnished condos – a rough proxy for short-term rentals – in the GTA surged 91% from a year earlier, Urbanation said.
Increased Supply
Meantime, despite a short-term hiccup to construction, tens of thousands of purpose-built rental and condo units are set to be completed in Toronto this year, adding a steady stream of housing as demand cools. Many of the condos now reaching completion were sold four or five years ago as pre-construction condos.
Rents
The average rent for a one-bedroom condo fell -5.1% year-over-year in May to $2,086 on average, while the number of one-bedroom rental transactions fell -30.8% annually across the GTA.
Average rents for two-bedroom units fell 5.6% to $2,740, with a 26.7% year-over-year reduction in the number of new transactions. However, the board says that, similar to home sales, there was a “marked improvement” in rental transactions in May compared to April, with nearly double the number of condos leased.
In April this year, sales of new condos including units in low, medium and high-rise buildings, stacked townhouses and loft units, at 470 units sold:
The benchmark prices for both new condos and new single-family homes increased slightly in April compared to the previous month:
The plunge in new home sales in April came as both builders and potential buyers stepped back from the heated activity of the first quarter, adjusting to the new reality ushered in by COVID-19.
Most planned new project launches were put on hold, sales programs for existing projects moved to virtual or by-appointment-only models, and short-term home-buying plans were disrupted by employment uncertainty as well as the challenges of stay-at-home routines.
