Toronto’s bizarre real estate market

BY JAY BRIJPAUL

Real estate took an unusual route in 2020. The ravaging pandemic has resulted in major job losses. Over 600,000 homeowners took mortgage deferrals. We expect the market to collapse. Last year, a typical home in January that was sold for eight hundred thousand dollars would now sell for about one million dollars. The average home price has gone up by at least 20%. What factors caused the market to take a different trajectory and, based on those factors, what will be the outcome for this year?

Real estate is a commodity that is controlled by supply and demand. With the pandemic, many homeowners held back on selling their homes and that created scarcity. Traditionally, about 10% of the supply is from seniors who would have sold their homes and moved into retirement homes. With the outbreak and bad publicity for retirement homes, many seniors looked for alternatives. Reverse mortgages allowed these homeowners to withdraw equity from their homes without having to pay a monthly mortgage until sometime into the future. With this, many seniors were able to keep their homes. The supply chain began to dribble. The few homes that went up for sale got multiple offers. Buyers began to outbid each other, and the price kept spiraling upward.

Mortgage deferrals was another clever idea that saved the day. With six months of mortgage vacation, many homeowners who were on the brink of bankruptcy pulled through. During this time, the prices climbed substantially, and these homeowners built enough equity and were able to consolidate their debts into one mortgage. With interest rates as low as 1.8%, and by extending their amortization back to twenty-five or thirty years, they can afford to keep their home. Some homeowners went the extra mile and used their equity to build a basement apartment, supplementing their income.

Despite COVID-19, the job market in GTA has remained resilient. Many employees such as bankers, IT technicians, mortgage brokers and government employees can work from home. Approximately 50,000 were able to social distance themselves in small towns where home prices are more affordable. Businesses such as restaurants began to offer home delivery and were able to stay afloat. The financial boost from the Federal and Provincial government such as rent relief for businesses was a welcome treat. Most of the job losses were related to tourism and the entertainment industry. On the other hand, we saw job growth in other sectors such as home delivery.

New regulations on short term rentals, the pandemic, and an oversupply of newly built condos caused the condo market to take a dip that was short lived. With home prices going through the roof, first time buyers went for condos instead. In many instances, it was cheaper to invest in a mortgage than paying rent. With renewed appetite for condos, the market went up at the beginning of the new year and this trend is likely to continue.

The pandemic is not over, and the current lock down has created more scarcity. For every home available for sale, there are about ten buyers. Toronto has become a real estate hot spot around the world. Once this phase is behind us, immigration will pick up. Also, the number of returning citizens from around the world is increasing, adding more heat to the real estate pressure pot.

Benjamin Tal, the deputy chief economist for CIBC World bank, predicts that the real estate market will continue to grow. “We’re seeing a situation where home ownership actually went up. Why? Because 25% of Canadians are telling us that they are considering buying another unit during this recession. Why? Because their job is still there, and their income is still there, and interest rates are in the basement. That’s an opportunity that they’ve been waiting for.” He mentioned that “80% of jobs lost were in the service sector. Many of them were low-income and many of them were renters. So, the impact was on rent as opposed to home ownership.”

“We’ve seen a lot of anecdotal evidence since the summer that households are considering significant lifestyle changes by relocating to less-dense cities and neighborhoods,” according to Christopher Alexander, Executive Vice President and Regional Director of RE/MAX of Ontario-Atlantic Canada. “This has sparked unprecedented sales this year in suburban and rural parts of Canada and we expect this trend to continue in 2021.” RE/MAX Ontario predicts that home prices in the GTA will climb between 12% to 14%.

Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada mentioned that, “Despite the tragic impacts of the pandemic, our optimism in the strength of Canada’s housing market has always remained.  While we have seen a significant shift in buyer preferences this year, we believe factors such as the supply issue, pent-up demand and historically lower interest rates will continue to fuel activity in 2021.”

Prices are not about to fall. Real estate is a precious commodity. It is predicted that in about seven years a detached home will cost about two million dollars, a semi-detached about around one and a half million and a town home, one million one hundred thousand dollars. The real estate market is indeed strange.