Now that we are officially in the second wave of the pandemic, the long-term reality of Covid-19 infiltrating our lives and our economy has settled in with most of us. But it’s different this time around. It’s not the same as the first wave. Though more restrictions will likely come our way, I don’t think we’ll see the kind of shut down we saw in the Spring. Though there is room for improvement on how we address this pandemic, we do know more about the virus, and how to conduct our daily activities while reducing our risk. That said, with larger case numbers in the Fall, we may see fewer transactions than the usual Fall market. I don’t think we’ll see things slow down quite like this past Spring, but we won’t be as active as most Autumns. And in turn, we may not see the winter months as quiet as usual this year and into next.
What I find most striking when I talk to clients now – both buyers and sellers – is their mindset. The common thinking now is not so much a shocked reaction to a new reality, but looking well into the future to figure out next steps. Many of us are now looking toward the long term view of the pandemic. What will Toronto real estate be like for the rest of the year? What will it be like next year? Just how will Toronto’s real estate market be affected by Covid-19 in the long term?
It seems like the Toronto real estate market will be co-existing with Covid-19 for some time, well into next year. For now, let’s just talk about the rest of 2020. Here are three big trends I see happening this year and possibly into next.
PRICE GAP BETWEEN HOUSES AND CONDOS WILL WIDEN
Before the time of Covid, things were reversed. Condos were gaining in value quicker than houses. This had a lot to do with affordability. Those who were trying to get into the market were able to afford condos, where houses were much more difficult to buy. Houses have generally become too expensive for the average Toronto buyer. So, more attention and activity happened in the condo market. With the arrival of Covid, the AirBnB market ran dry. These short-term rentals were a significant portion of the rental condo market. All of those short term rentals then went on the market for long term rent. This, in turn, led to a growth in rental supply. At the same time, the Covid-19 job disruption disproportionately affected younger people and renters more than property owners. Because there were less people renting due to job loss and because of the increase in long term rentals, condo rents have come down during the pandemic. In addition, more condos have come to market following the pandemic. Condo prices have not collapsed, but they are down in some buildings, and I would venture to say that for the rest of the year, we may be in a buyer’s market for some condos.
Houses are another story. They have more space. That’s the exact thing people are looking for during this pandemic. All those people whose homes were already a place to live now have added roles for their homes. Homes are now places to work and even to school your children. The pandemic has us living in our homes much more -sometimes all day. So, all those people who could, are now looking for houses ahead of schedule because they need the space now. This trend will not change. the gap between houses and condos will widen. That said, houses will not increase in value as much as we saw in the summer.
U SHAPED RECOVERY – BUT NOT IN 2020
Coming out of the Spring in May and June, it appeared that we were having a V shaped recovery where the housing market came roaring back. Houses, in fact, quickly rose faster than their pre-pandemic prices. Our rush to get back to normal after our initial foray into quarantine made it appear that the economy bounced back fast. It did, but not fully and we still have a way to go. So, our recovery is going to be a lot more like a U shape. That means, we may see an anchoring of activity and possibly prices in some areas of real estate. That anchoring is going to be with us until next year, possibly for as long as 2022.
HOUSEHOLD DEBT IMPROVES
There is some positive news from all of this. Household Debt to Income Ratio has dropped the most in 10 years. According to Urbanation, household savings are up 3.9% at end of 2019. It was 28.2% in June 2020. Though that lack of spending does hurt the economy, it does mean Canadians are getting a better handle on their finances and debt. There’s less spending, less travel, fewer purchases, and more meals made at home. There has been much concern for the past few years that Canadians have let their debt become too big. This will certainly put Canadians in a less volatile situation.
2020 is not like any year we’ve seen. And the last 3 months will not be like any other as well. What does that mean for buyers and sellers? Well, for sellers, it depends what you are trying to sell. Houses in most neighbourhoods still have strong sales. That may change in some areas this year, but generally, prices are still strong in most. Sellers of houses may still do well for the remainder of the year depending on where you are. Condos may depend on what kind of condo you have to sell. We may see some downward pressure on condo prices. If you feel you need to sell soon, then I say the sooner, the better. If you can wait, you may want to get on the other side of this pandemic – later in 2021 or possibly 2022.
For buyers, you may have an opportunity. You could be able to buy something for less than you had thought during this uncertain time. Rates are at an historic low. I’m not sure there is going to be an amazing sale and market collapse, but lower prices and low interest rates are good things for buyers. Though it may feel counter-intuitive, it may be a good idea to buy during the uncertainly. Once we return to normal, the opportunities may be fewer. And when we return to normal, we will bounce back as quickly as the U curve does.