Toronto Condo Market Condition and some Thoughts on Post COVID-19
I want to start by saying I hope that all of you and your families and friends are staying safe and healthy since we’re truly going through an unprecedented time which has impacted all facets of a regular daily life and the economy including how the pre-construction condo market functions.
This was clear from the numbers that were recently released from March 2020 taken as a whole point to continued strong demand for Toronto condo ownership with sales up by 12.3% year over year. However, there was a clear break in market activity between the pre COVID-19 and post COVID-19 periods for the purpose of this update; we’re assuming it started the post COVID-19 was the week beginning on 15th March. With this in mind, the overall market sales result was clearly driven by the first two weeks of the month there were 4,643 sales reported in the pre COVID-19. Accounting for 58% of total transactions representing a 49% increase compared to the first 14 days of March 2019 in contrast there were 3,369 sales reported during the post COVID-19. Down by 15.9% compared to the same. In March 2019 a similar story unfolded for new listings for March as a whole new listings rot by 3% year over year 14,424 however new listings dropped on a year over year basis during the second half of the month by 18.4% clearly uncertainties surrounding the outbreak’s impact on the broader economy and the onset of the necessary social distancing measures resulted in the decline in sales and listings since March 15th despite sales on listings trying to lower in the second half of March 2020. The demand for ownership Toronto condo remains strong enough relative to listings, we can clearly see the average selling price remain above last year’s levels including during the last few days of March 2020.
The last home price index composite benchmark price was up by 11.1% year over year in March 2020 while the selling price for March 2020 as a whole was $902,680 up by 14.5% compared to March 2019. The selling price for sales reported between March 15th and March 31st with $862,156 down from the first half of March 2020 but still up by 10.5% compared to the same period last year as we move through April, we’ll have a clear view on how social distancing measures and broader economic conditions will influence sales and ultimately the pace of price growth.
According to Globe and Mail:
The big real-estate story in recent months has been the surprising resilience of the residential property market, with record price increases and fierce bidding wars, even in the face of double-digit unemployment. The crash in housing prices anticipated by many in the spring has yet to materialize.
“Our views are changing,” says Robert Hogue, a senior economist with Royal Bank of Canada. “The strength [in the summer] was quite a bit stronger than we might have thought. Clearly, there was pent-up demand from March and April, but we didn’t think it would pop that much.”
The market will likely cool down as that demand runs its course in the coming months, Mr. Hogue forecasts, but predictions of an overall price decline may have been premature. However, he says, there’s one possible exception: big-city condos.
“In single detached or low-rise, demand/supply might remain tight enough to see price increases,” Mr. Hogue says. “But we do see things softening enough to drive condo prices down; we see any weakness concentrating there.”
For a variety of reasons – declining immigration, a softer rental market and a sudden preference among buyers for more spacious accommodations – the big-city condo segment is most vulnerable to post-COVID headwinds.
A sales slump would be a major turnaround for that housing category, which, in many cities, stormed into the beginning of 2020 with price increases outpacing that of detached houses. In the first quarter of 2020, new condo prices in the Toronto metropolitan area were up 14.6 per cent over the previous year, with resale prices up 8.5 per cent, according to Statistics Canada data. In Montreal, those numbers were 9.8 per cent and 8.2 per cent, respectively, and in Ottawa, new condos were up 22.6 per cent year-over-year, with resale up 15 per cent. Vancouver was the outlier, with modest price decreases.
Since March, however, both price growth and sales activity for condos have trailed other market segments.
“One thing we have seen is a bit of a move out of the core in terms of buyer interest,” Vancouver realtor Dan Morrison says. “People’s needs and lifestyles are changing, as [they] look for more space and don’t maybe need to come to the office, so these are question marks above the market.”
That said, Mr. Morrison stresses the impact of changing buyer preferences is relatively modest so far: “We certainly haven’t seen the urban exodus some people have been predicting.”
Still, there’s been a noticeable shift in some cities. According to the Real Estate Board of Greater Vancouver, apartment-home sales in the metro area remained higher than detached-home sales in August (1,332 versus 1,095). However, that still represents a modest move to the detached market: year-over-year, apartment-home sales were up 19.4 per cent, while detached homes were up 55.1 per cent.
“Detached homes are selling very quickly, often with multiple offers, as people pay a premium for space,” says Brendon Ogmundson, chief economist with the British Columbia Real Estate Association. “Condos, while recovering, are not quite at the same pace…and the market for condos is not nearly as under-supplied. I’d expect things to balance out for the apartment market in the fall while single-family will continue to trend higher.”
Elsewhere, sales growth and price growth have similarly fallen behind the single-detached and low-rise market, but realtors aren’t exactly panicking. Statistics from the Quebec Professional Association of Real Estate Brokers show Montreal-area condo prices up 13 per cent year-over-year in August, only slightly behind single-family homes, with a 15-per-cent increase.
In the Greater Toronto Area, condo prices were up 9.5 per cent in August versus last year. Within the city of Toronto itself, prices were up 8.7 per cent year-over-year. That was the smallest price appreciation of any market segment – and well below detached houses at 21.4 per cent.
“We were seeing stronger sales on the single-detached front,” says Jason Mercer, chief market analyst for the Toronto Regional Real Estate Board (TRREB), “and we’re also seeing more listings coming on for condo apartments, so that’s moving toward a more balanced market.”
Preferences for more space and suburban locations have affected demand modestly, Mr. Mercer says. That’s had a knock-on effect in the secondary rental market in Toronto, where a decline in rents, and higher vacancy rates, are allowing renters a little more wiggle room.
“On the rental side of things, the one-bedrooms are moving due to price,” TRREB president and realtor Lisa Patel says. “But ultimately, I think people are in search of a little more space for their value…I’ve personally seen more demand in the two-bedroom units, or one-plus-den, and that’s where space plays a role.”
Things could change more significantly in the coming months, however, depending on a host of factors, among them the speed of economic recovery and the severity of a potential second wave of COVID-19. Of particular importance is the pandemic-related drop in immigration into Canada.
“Typically, newcomers to Canada go to the core major CMAs [census metropolitan areas], and they tend to be renters in their first few years,” Mr. Hogue says. “So this is a potentially major impact for the rental side of things, and that affects the ownership market through condo investors.”
Immigration has begun to creep back up, though. Canada added only 4,000 new permanent residents in April, but that grew to 11,000 in May and 19,000 in June. That’s still far below the 34,000 added in June, 2019, but the trajectory is clear. How fast it returns to normal, however, remains uncertain.
“Let’s say six months after everyone has been vaccinated, we can start to pass judgment on how lasting these emerging trends are,” Mr. Hogue says.
“My gut feel is that part of this work-from-home is here to stay, and that will have some effect on those downtown condos, especially smaller units. But how much impact these have, how lasting they are, I think we just have to wait and see.”
According to Advisor.ca
Housing prices in Montreal and Ottawa are poised to fare best in the months ahead, while the outlook for other major markets, such as Toronto and Vancouver, are less positive, Statistics Canada says.
A StatsCan study examined Canada’s key housing markets heading into the Covid-19 outbreak and in the months since the pandemic took hold.
“Demand outpaced supply in most key housing markets until mid-March 2020, spurred by economic growth, a low unemployment rate and population increase largely from immigration,” it said.
“Covid-19 changed everything.”
In March, the economy plunged, unemployment surged and immigration ground to a halt. As a result, housing sales dropped by an average 70% through April in Canada’s big housing markets, StatsCan said.
Looking ahead it sees a range of outcomes for the key housing markets.
Ottawa, which boasted the hottest housing market heading into the pandemic, is expected to continue outperforming.
It has been less hard hit economically than other regions, given the high proportion of government workers, tech sector employees and other professionals who have held on to their jobs.
“Given the economic stability of Ottawa, and that it has one of the highest population growth rates in the country, house prices will likely continue to rise for the foreseeable future,” StatsCan said.
Montreal enjoyed strong price growth prior to the pandemic, and underlying supply and demand fundamentals continue to support rising prices.
“Given that Montreal is a major immigration hub, it is seen as having enough housing demand to sustain positive price movements for the foreseeable future,” StatsCan said.
In particular, the study said the single home market is expected to perform well, whereas the condo market may be hurt by declining rental prospects, pushing down prices.
The pandemic has transformed the rental market in several major cities, with physical distancing measures and travel restrictions undermining demand.
“There is already evidence of this happening in Toronto, where average rental prices have begun decreasing as new landlords try to attract clients from a diminished pool of potential renters,” the study said.
As a result, StatsCan said the supply of condos in Toronto is expected to increase, as short-term rentals have lost their main sources of income and increased rental construction is boosting competition.
Investors who previously bought condos to serve as short-term rentals may now look to dump those properties amid declining demand.
Additionally, the decline in immigration will likely drive down condo prices in the medium to long term, StatsCan said
At the same time, prices for higher-end housing in Toronto are expected to stagnate, or decline, given the economic downturn, it added.
With a rise in remote working, more buyers may look for larger houses in the suburbs that can accommodate home offices, StatsCan said.
The study sees similar dynamics to Toronto in Vancouver’s housing market, which remains among the most expensive markets in the world.
The high cost of housing, coupled with increased remote working, may push more people to move to outlying areas in Vancouver, StatsCan said.
It also sees the potential for short-term rentals to flood the market in Vancouver, driving down condo prices in the short to medium term.
The market outlook is weakest for Calgary, which was already seeing housing prices decline prior to the pandemic.
“Home prices in Calgary have been falling since the oil price crash in 2014 and with the recent uncertainty surrounding the energy sector,” it said.
This has continued in the wake of the pandemic, as housing inventory continues to accumulate.
“Calgary does not have the economic diversification that Toronto or Montreal have and will continue to suffer from bleak economic prospects for the foreseeable future. This will definitely contribute to the negative pressure on real estate prices,” the study said.
According to CTVnews.ca
Canada Mortgage and Housing Corp. is bracing for further impacts on the housing market from the COVID-19 pandemic.
The housing market will have to reckon with significant short-term uncertainty, as well as falling housing demand from weaker household incomes in the medium term, the Crown corporation said on Friday.
The Canadian housing market broke sales and price records in July as it continued to play catch-up after spring shutdowns. But CMHC said the economic shock of the pandemic has not yet been fully reflected in the latest housing market data, predicting the process of containing COVID-19 could still pose a risk to prices, sales and new building projects.
“While it will take several months for the economic impacts of COVID-19 to fully materialize, some factors are starting to work their way into in our financial results — for example, we are starting to see the impacts in our provisions for insurance claims,” said Lisa Williams, CMHC’s chief financial officer, in a statement on the corporation’s second-quarter financial results.
CMHC is reporting net income of $566 million in the three months ending June 30, up from $379 million during the same period last year, with an arrears rate of 0.34 per cent.
While CMHC took on new government programs and funding, it also saw claims expenses jump by $256 million, or 711 per cent, due to an increase in provisions for COVID-19 related claims, including the outlook for mortgage loans currently in deferral.
CMHC has purchased $5.8 billion of insured mortgage pools this year as part of a government program, and is also administering the Canada Emergency Commercial Rent Assistance program for small businesses.
CHMC’s next report will also show the impact of its stricter underwriting criteria, which as of July 1 tightened credit score and down payment requirements for insured mortgages.
The corporation also said it has suspended dividends to save money in case further government action is needed.
“We remain in a strong financial position to bear the full impacts of COVID-19, and to take further steps to support Canadians and the economic recovery if necessary,” Williams said.
This report by The Canadian Press was first published Aug. 28, 2020.