“It’s not a recession, it’s not a depression, it’s something in-between…It’s basically a frozen economy,” says Benjamin Tal, Managing Director and Deputy Chief Economist at CIBC World Markets. It was only a couple of months ago (although it seems like a lifetime now) when Greater Toronto and most of Canada was seeing a surge in real estate activity. The Canadian economy based on key indicators was functioning almost at capacity. And then, the Covid-19 pandemic hit and brought virtually everything to a stop.
Surprisingly, the average home price in the Greater Toronto market was up 0.1% year-over-year in April. However, this was mainly due to the surge in activity during the first two and half months of 2020. On a month-over-month comparison, April prices were down 9% while the sales volume was down almost 63%.
Back in mid-March, when the Ontario government ordered all non-essential businesses to close, Real Estate was deemed essential mainly to ensure transactions that were pending would complete without disruption. However, for us Realtors, business was anything but usual as the health and safety of the general public and of course our clients was of paramount significance. Policies were put in place by brokerages and local real estate bodies to ban open houses and just like that, real estate became “virtually” all virtual for part of March and all of April.
As of May 11, the province of Ontario has started easing up very gradually on the lockdown rules. This may seem like a small step but we believe the impact will be significant both economically and psychologically. On the real estate front, we are starting to see an increase in the number of showings and sales in the last few days in May compared to the last few weeks. And at the moment, any positive sign seems like a step in the right direction and would help with overall consumer confidence.
Here’s a quick analysis by CIBC’s Bejamin Tal on some of the headwinds we Ontarians may be facing over the coming months, specifically as it relates to Real Estate.
NEW LAUNCHES
The uncertainty and physical distancing measures being encouraged across Canada right now will lead to a slower market for new developments in Toronto and the GTA. As most of the sales offices are closed or have gone virtual, many new project launches are on a hold for the time being.
PRICES
It seems more likely at this point that prices will pause rather than experience a noteworthy decline, as buyers and developers mutually disengage for the most part.
PROJECT COMPLETIONS
Unless construction sites are shut down or become significantly delayed, a wave of completions will still occur this year and more so in the city’s condominium sector.
WHAT ABOUT INVESTORS?
Investors, especially in the condo market, so far are well positioned. Because units finished this year were bought four to five years ago and interest rates have dropped, calculated carrying costs (including a mortgage with 25% down, condo fees, taxes and insurance) will be at least $100 a month less than current average rents in Toronto of $2,400. This provides some room for rents to adjust down more easily so the units can become occupied.
RENTAL MARKET
Rents in the GTA were already flattening before the crisis happened as the market began to show some resistance to high rents. In Toronto for instance, it seems like there will be an adjustment of about 5% decline on the overall rental rates.
So what is the end game? In our humble opinion, it will be the development and wide-spread administration of a Covid-19 vaccination in Canada and globally. In the meantime, stay safe and healthy everyone.
Written by Usman Mahmood
Usman Mahmood and Komal Usman are real estate sales representatives with Sotheby’s International Realty. If you are interested in learning more about investing in real estate in the GTA, they can be reached at 647.929.5233 or by email at usmangroup@sothebysrealty.ca
