A letter from the Toronto trenches: 2020 in review and what to expect in 2021

The Year 2020 started like any other Decade.  

Hope, Positivity, Community and Health were at the top of our and our fellow citizen’s minds as a new year was here for us to conquer. .  I  vowed I would start a new diet, go to the gym, and even promised my wife I would work a little less.  Lots of areas to improve on personally, and many different things to focus on when looking at the future…

Today however, I will only focus on what I know best- Real Estate. In January, the Toronto Housing Market was fully recovered from the 2017 and 2018 dips and challenges, and by the end of February- prior to the news of COVID-19- the market was on a RED-HOT trajectory. 

By the end of March, we were seeing double-digit gains in housing appreciation, some of the lowest mortgage rates in history, and a market with one of the lowest inventories recorded.  All in all, the average price for a home in the city of Toronto was $987,787- which finally had outshined the Apex of 2017 (which was $943,947), where pundits were crying foul. In 2017 the provincial Government artificially froze the market with the introduction of the “Fair Housing Plan”.

In April 2020, the global economy was ordered to be FROZEN, as the FIRST truly GLOBAL Pandemic spread around the world in less than 90 days of its first case.  All the statisticians, politicians, economists were put on the spot.

The Media was having a field day, people could not get enough.  When our province was ordered to Lockdown for the first time, in April to May, the economy was pretty well CLOSED by law.  Real Estate being an essential service, with the exception of ongoing deals we were already working on, was also affected greatly.  No open houses to showcase homes, no showings, other than virtual, making it almost impossible to market, actively pursue or otherwise operate, as no one at the time knew how to safely operate. It was unknown how banks would work, and how appraisals and inspections were to be scheduled.  However, by the end of May, there was change.  People and businesses adapted.  People needed to make moves, as nothing stays stagnant for long.  

On Bay Street, the economists were clear.  They looked at the economic carnage, as it was mounting, and thought there is nowhere to go but down. CMHC, the Big 5 Banks, and every “expert” published reports, and released  opinions.  Bubble, Bust, Boom Crash…all the usual hype, but Bay Street has been getting Main Street wrong for more than a decade.  

Even with a pandemic and massive job loss, they failed to predict the market.  The resilience of the Canadian economy, specifically the Great Toronto Market is not a mystery nor unnatural- it is a result of some of the lowest-recorded mortgage lending, a tight supply, and an environment that is overall a great place to live.

People want to live here.  People want to work here.  People want to raise their families, get an education, find their partner, and enjoy what Canada’s economic and cultural capital have to offer.

Rather than a slowdown, what we saw was the true problem that Ontario has failed to address. The problem  that has been hanging over us and why we’ve seen our market grow exponentially in price is SUPPLY. The actual housing required has NOT BEEN MET.  As a result, the minute people could move, they did.  We saw July, August, September, October of 2020 perform in consecutive Record-Breaking, Month of Month over month and Year over Year appreciation and activity growth.  With the November numbers now in the books, we saw yet another strong and massive month in activity and stability in appreciation.

The number of homes for sale at any given time, is at a record low across the country. The Royal Bank of Canada, has again been reporting statistical and information, in a way that the majority of Canada is experiencing tighter demand versus supply than the country has seen in nearly two decades.[1]  At the end of September, there was just 2.6 months of inventory on a national basis. That restricts supply, which increases prices if demand remains unchanged.[2]

Fewer listings create a housing market that is clearly in favor of sellers. Buyers must be savvy, prepared and knowledgeable to get a home that works for them.  Listings now spend about 26 days on the market.[3]

As a result of this ultra-competitive market, that is seeing bidding wars with over 30 and 40 offers across the GTA, sellers are reaping the rewards of high net returns on the sale of their homes.  The average home price in the city of Toronto, at the end of November was $979,724 and further, looking into the GTA, the average price was $955,615. That is an incredible year over year increase of 12.6% for Toronto and 13.6% for the GTA, respectively.[4] In the GTA, we are seeing new numbers that one would have never dreamed of.  Oakville’s average price for a home is now over $1.2M.  Brampton has literally less than a month of inventory, and the average price for a home in Durham is $700K plus.

Toronto’s Core has softened due to the Pandemic; With Record Low Cost of Borrowing; Buyers have much more CHOICE. 

Buyers in the GTA were truly driven by a few major factors; affordability, as detached homes in Toronto are well over $1M to start, commute times to work- as no one wants to spend three hours a day on the 401- and quality of education, school districts for their young families.

The pandemic of 2020 has definitely made its mark, with the majority of the white collar jobs making the shift to “Work from Home”, people felt free to reconsider and potentially change the type of home and where exactly their home needed to be.  

We have definitely seen and felt a huge wave of residents relocate from the tiny downtown condos of Toronto’s Downtown, into the suburbs (905’s), where it gives them more space, and typically puts them closer to family.[5]

With the average five-year fixed rate sitting at around 1.99% or less, buyers have A LOT MORE purchasing power. I want to illustrate the options a typical young family has now, vs. before the pandemic and the reduction of mortgage rates.

We will use an average purchase price for the GTA, let’s call it $700,000.  The buyers have 20% for their down payment, or $140,000 available.  They will be seeking a mortgage of $560,000 to close the purchase of their home.

Pre-Pandemic, the average mortgage was floating around 3.5% with an amortization of 25 years, that monthly payment on the $560K mortgage would run them $2,792/mo.

Post-Pandemic, with rates now under 2%, using the same amortization, the monthly payment on the same mortgage is $2,363/mo.

That extra $430 per month, literally translates into confidence that you can stay under budget and not be house poor, which is a huge fact in the city, or it can be a whopping $100,000 further Purchasing Power, that enables a bigger or more stable move.

Is anyone still wondering what is driving the 905’s to new heights?  Wait till the COVID Baby Boom comes into effect next spring and watch the townhouse and semi detach markets hit new records. 

LOOKING INTO THE FUTURE – BETTING ON 2021

You can play the result and hype of our market in 2020 up, you can play it down, and you can play it sideways. The fact is, 2020 experienced a record-breaking number of home sales, just as CREA reports. Resale home sales jumped 46.5% in September. With an additional 20,000 transactions logged, it was the busiest September on record. EVER. [7]

With positivity mounting surrounding the COVID-19 Vaccine, and a reopening of the economy as a result, there are only a few things that you can count on.  

The airport and immigration will reopen.  Canada has aggressively increased its quota and process that is to follow, to get qualified and savvy immigrants to choose Canada to build their lives and homes.

Universities, colleges and their respective Campuses, will re-open.  Since the beginning of time, just like real estate is essential, education is the same.  If anything, the demand for higher and more competitive education will increase because of all this.  Housing in the downtown Toronto area, and all major Campuses across Canada, will make headlines.

All the aforementioned factors point to the housing market remaining strong and only growing as we come out of this horrible Health Crisis. Fortunately for me, many experts, much smarter than me, also believe these factors to be true.[8]

As our market stays competitive and strong, Real Estate ownership, whether for you to live, or to invest in, will continue to be the safest, best way to grow your wealth and build your legacy.

If you are thinking of buying or selling a home in 2021, and need a fact based and objective approach, contact me or anyone on my team now to schedule a consultation.

Sources:

1. RBC Economics
2. Yahoo Finance
3. Zolo
4. Stats are attached.
5. Global News 
6. Yahoo News
7. CREA
8. TD Economics