July 2020 Market Update

July 13, 2020

In this month’s video I discuss CMHC’s prediction that Toronto home prices will DECLINE this year, while the Toronto Regional Real Estate Board’s statistics are showing INCREASING prices. I talk about several factors affecting prices, relating to supply (number of homes for sale) and demand (number of buyers). I get specific about what’s happening in the condo apartment segment. Watch and see if you agree!

In case you’d like to read the script, here it is:

Hi, it’s Miia here with your monthly market update.

CMHC’s Prediction

On June 23rd CMHC released another special edition of its Housing Market Outlook report. In it, it predicted that average home prices in Toronto would decline throughout the remainder of this year.

 “Average house prices were on an upward trajectory during the time period leading up to the provincial lockdown in mid-March. They will decline throughout the remainder of this year and into 2021.” – CMHC Housing Market Outlook – Special Edition – Summer 2020 (posted on June 23, 2020).

What Has Happened So Far

But so far, this has proven to be incorrect. Prices did peak in February, began to drop in March and dipped down further in April, but since then they’ve been back on the rise, and in fact, in June they surpassed the previous prices of February.

This pattern holds true for the GTA in general, and other municipalities within it. Check out my Facebook / Instagram or LinkedIn page for my latest charts average home price charts.

Discussion of the Discrepancy

So, consider the source of the report. CMHC, the Canadian Mortgage and Housing Corporation, underwrites mortgage default insurance. They provide financial protection to lenders for the risk associated with lending – that borrowers will not paying their mortgages. Part of their job is to protect their insurance fund by managing the level of risk that they take. So when they write up a report with predictions about home values, we can expect that they are going to be conservative in their estimates; which means, in my opinion, that there is a good likelihood that home values will do better than what they predict. And that is what we are seeing, so far.

Of course, in real estate, there are lags in changes to home prices after economic changes, and this pandemic isn’t over. In these unprecedented times, predicting home prices is difficult. One thing that I can say for certain is that the demand for home ownership in the GTA never ceases to amaze me. Just when you think there will be a break in the strong seller’s market, more buyers come out of hiding.

Home Prices are, like anything else, influenced by factors in supply and demand. Let’s look at some of the factors at play.

Home Prices = Balance Between SUPPLY and DEMAND

On the supply side, here are some factors that work towards INCREASING the SUPPLY of homes for sale.

  • From the rental market, more homes are now being sold by the owners due to reduced demand for rental housing. The pandemic had a direct effect on the rental market, because the people who lost their jobs or a portion of their income were more likely to be in lower income industries, and people in lower income industries make up a large part of the tenant population in the GTA.
    • So, tenants who could no longer pay their rent moved out.
    • People who were living with family who were planning to move out, are now staying longer.
    • Immigrants, who make up a large portion of the tenant population, who were coming to the GTA can’t get here due to travel restrictions.
      • For all of these reasons, the demand for rental housing has dropped, vacancy rates are up, and more landlords are putting their properties up for sale.
  • Further increasing the supply of homes for sale are sellers who were maybe going to sell their home at some point in the next year or two who fear a price drop are selling now.
  • Also, in the new home construction segment, a significant number of newly-constructed units will soon reach the re-sale market.

One factor which would work towards DECREASING the SUPPLY of homes for sale is that people who were thinking about selling their low-rise home, for example, such as someone who is getting older and wanting to reduce the amount of home maintenance required, by moving into a condo apartment, may stay in their low-rise home longer, since low-rise homes seem to provide a lower risk to catching a virus.

A factor that is INCREASING the DEMAND, or number of buyers is that there is a pent-up demand that was caused when the pandemic first reached the GTA and buyers stopped looking at homes for fear of catching the virus or losing their jobs. Now, people have adjusted to using physical distancing, masks and hand sanitizer, and have re-gained confidence in keeping their jobs, and they are back in the market, together with the people who already would have been buying at this time of year.

What might be DECREASING DEMAND for home ownership? There are still some people who are worried about their job prospects in the long term. Others are now able to work from home and have discovered that they can leave the GTA and buy a home for a lower price, further away, and still keep their jobs.

So, how do all of these variables balance out?

Consider this: on May 20th the results of a recent Ipsos poll conducted on behalf of the Toronto Regional Real Estate Board were released, indicating that 27% of GTA residents were likely to purchase a home sometime in the next 12 months, and 21% were likely to sell.  With more residents planning to buy than planning to sell, the odds appear to be in favour of sellers, yet again, which would support a prediction of INCREASING home prices.

Unique Aspects of Condo Apartments

What will be most interesting to me will be the dynamics with respect to the different types of housing.

Will there be a mass exodus of condo apartments while we live through this pandemic, because people are worried about catching the virus in tight hallways and elevators, and perhaps cannot make use of their amenities anymore? We have already seen that the condo apartment home type is one segment of the housing market in which the average home price has NOT yet recovered from its high in February.

If demand for condo apartments continues to decrease together with an increased demand for low-rise homes, then a major challenge will continue to be a lack of supply of low-rise homes in the GTA to meet that demand. People hoping to buy condo apartments will likely have more selection and perhaps even a levelling out of prices for a period of time.

As always, actual market activity is unique to every neighbourhood and home type, so if you want more specific information, then call/text or email me.

That’s my update for this month. If you have any questions, let me know.

Bye for now.