It’s that time of year again – all the perditions are rolling in. It’s always so fun to make those predictions, and look back at the end of the year and see how bang on you were or how disastrously off you were perhaps!
Overall it’s looking great for Toronto’s economy and real estate: vibrant labour market, increased demand for housing and low interest rates suggest a bright 2020 ahead.
According to Canada’s Real Estate Association (CREA), sales are forecast to pick up, housing inventory will continue to lag demand, putting continued pressure on prices.
Here are our predictions for Toronto Real Estate in 2020:
Home prices in the Greater Toronto Area (GTA) increased in 2019 — and that momentum is expected to continue in 2020, with the median price of a two-storey home rising over $1 million, according to a new forecast from Royal LePage.
The median price of a condominium is expected to increase by six per cent year-over-year to $600,000.
The Canadian Real Estate Association (CREA) estimates the national home sales to reach 530,000 units in 2020, an 8.9 per cent increase over the total expected for 2019.
What’s driving this momentum?
Low Supply and Population Growth.
Canada’s population grew by 531,000 from August 2018 to July 2019 – the largest 12-month increase in our history according to Statistics Canada. Strong immigration numbers are likely to maintain a sustained demand for housing. A Royal LePage survey reported in October 2019 that “newcomers to Canada are expected to purchase one in every five homes on the market over the next five years.”
Nearly 60% of that growth took place in Ontario and British Columbia and these people need places to live.
With shifting demographics and increasing rents and housing prices presenting an affordability crisis in Toronto and Vancouver, shortfalls could continue for the foreseeable future.
According to the RBC Economics report the Toronto census metropolitan area (CMA) needs 22,000 NEW rental apartments and rented condominium apartments PER YEAR to satisfy demand between 2019 and 2023.
Inventory is critically low and it is possible that we could see a return to accelerating high price appreciation in the near term without new supply becoming available.
In November 2018, the average rental rate for all property types in Toronto was $2,385.
That rate increased to $2,591 in November 2019, representing an increase of 8.6% annually.
According to Rentals.ca, condo rental rate growth was slower than anticipated in 2019, rising by just 4%. Rent growth for single-family homes was more significant as well, at 11%.
Average rent in 2020 is expected to surpass $2,800 at some point in the year. Rent by December 2020 will be an average of $2,770 per month, representing a 7% annual increase.
While Prime Minister Justin Trudeau has directed his finance minister, Bill Morneau, to review the tests and potentially make them more dynamic and flexible, it is not certain if or precisely how that will happen.
The real estate industry has long pushed for changes to the stress test, but experts have warned that easing its requirements could risk pushing up home prices and increasing household debt.
In 2016, the government introduced a stress test on insured buyers, or those who typically make a down payment of less than 20 per cent of a home’s purchase price. The test is intended to gauge whether borrowers can afford their mortgage payments at higher interest rates.
Despite the test, home prices continued to rise, particularly in Toronto and Vancouver. Subsequently, in 2018, another stress test was introduced on uninsured buyers who make larger down payments.
However, the B-20 test is also credited with contributing to a slowdown in real estate activity, while critics have said it is far too simplistic and blunt in its current design pushing out first-time home buyers.
As home prices in Toronto continue to soar, push more demand over to Toronto’s condominium market, as buyers are increasingly looking for larger units.
According to Urbanation Inc. unsold inventory is now at its lowest since 2010 and, with only 6.8 months of supply available, at a decade-low for inventory.
Buyers that would have otherwise bought a house in Toronto are opting for larger condos. And with critically limited supply of these units in the resale market, new pre-construction condos have seen rising demand, which is leading developers to shift strategies and include more and larger two bedroom and three bedroom units.
According to TREB, in the 905 region Brampton and Mississauga both have “sizzling” housing markets and a lack of housing inventory. As the downtown core continues to become more unaffordable with rising prices, more buyers are now shifting their preferences in unit size and location and moving outside the 416 and into the 905 region.
In addition, Mississauga, Brampton and Vaughan are popular destinations for immigrants and first-time home buying Millennials.
The new supply will come from the 905 region. These municipalities are looking for density. Most of the surface parking lots in Toronto are mostly picked up. As Toronto land prices also continue to rise, developers are actively looking in the 905. Theres demand for housing, municipalities want the density and it makes economic sense.
These regions are seeing high-rise towers 40 – 55 stories high, built to the calibre of downtown Toronto skyscrapers that are 20-30% cheaper than downtown Toronto. In addition, the transit infrastructure has drastically improved in the 905 specifically the recently opened Vaughan Metropolitan Centre (VMC) TTC station that is 45 minutes to downtown Toronto – still connected.
As soaring real estate prices in the GTA push more and more people out of the market, co-ownership of homes has become an increasingly enticing option for many would-be buyers.
Friends purchasing homes and condos together to live together.
Co-ownership will “explode” in popularity once Canadian financial institutions come to see the value of lending to would-be buyers trying to own a piece of a property.
A growing trend in rental property management is co-living or communal living. With record low vacancy rates and rapidly rising rents, Toronto renters find themselves rooming with others to keep rent costs low.
Renting a room in a shared space with a community of roommates and additional services including fully furnished units, all utilities included, WiFi and Netflix subscriptions, hosted community events and housekeeping represents as much as 20% discount to living alone.
When you consider a renters options: rent a small studio in the downtown core for $1900/ month or a bedroom in shared space with all the added perks for $1700/ month on short term leases? It’s easy to see that co-living makes a great option especially on a budget!
