April 10, 2020 | Covid-19
It’s far too early to know what the Toronto real estate market will look like on the other side of this pandemic. Let’s be very clear about that. There’s just far too many variables to be sure what will happen. That said, let’s look at what we do know and what we don’t know, and see what some of the possibilities may be.
Let’s start with some of the things we do know right now. We do know that the market was very strong and active before Covid-19. So, when things did start to change in Toronto, it is good that Covid-19 was not the final blow in an already struggling market. We also know that the market, for the most part, is currently on pause. For the properties that are not on pause, some are not selling. Some, even in the first week of April, have sold in multiple offers. I didn’t think that was possible, but I spoke to two of my fellow agents who received multiple offers on their condo listings.
Even though there is some minimal activity, any statistics generated in the next month or two or three will not be a very good indicator on how real estate is performing in Toronto. Though there are some people who may need to buy or sell right now, real estate transactions in Toronto are at historic lows for very understandable reasons. For now, with distancing measures and now banned open houses, viewing properties has never been more restricted. So, real stats won’t be available until restrictions are lifted. Any stats we find now may just be a reflection of the restrictions, not the market.
Now let’s look at what we don’t know. We don’t know when our lockdown will be finished and restrictions eased. We don’t know what life will be like if Covid-19 sticks around for a year or two, and we live with some restrictions and safety precautions, though much less than in a lockdown, in our daily interactions. And most importantly, we don’t really know what Covid-19 will ultimately do to impact the economy and our job numbers.
So, it is possible that we can end up in a prolonged recession. If our attempts to halt the virus fail and a cure is not found for a long time, we may see a market downturn until we see the pandemic end. With high unemployment and a poor economy, we may see many more people/ investors who need to sell. This scenario may unfold if we do not get ahold on the spread of the virus and a prolonged quarantine goes on for much longer than we hope. In this scenario, the market may be slow to come back, even after Covid-19 is no longer a global threat.
I think this scenario is unlikely, even with the limited current data we have. I think it is far more likely that Toronto’s real estate market will come back to life quicker than some believe. I know many of you will just brush that off as the rosy views of a real estate salesperson. I don’t know if we will fully be back to normal this Summer or Fall, but I do think there’s a good chance we’ll be a lot closer. There may be a very brief time where buyers may be able to have somewhat of an advantage on certain properties in certain locations, but I suspect it won’t last very long.
When the economy comes roaring back, it will happen quickly. That has been the case in China as their restrictions were lifted. Also, if the real estate market was not functioning so strongly when Covid-19 started, I would be more worried for sellers. So, sellers were lucky, in a sense, to have such a strong real estate economy when Covid-19 took hold in Toronto. That pent-up demand and low inventory will still be there after all of this. The Toronto economy at large was fairly healthy when things went south. Covid- 19, with all the terrible things that come with it, arrived at a financially good time. In other words, we had a strong economy when things changed. Underneath this pandemic, we still have very low supply in the Toronto real estate market.
Another point to note: The government acknowledges the size of the real estate economy in Canada – the biggest industry in Canada, passing oil a few years ago. So, they will be on standby to step in if needed. Already the government has invested $150 billion to prevent a credit freeze. In other words, the government is essentially buying mortgages. It’s not so much a government bailout as it is an investment from the government. Provided most of these mortgages don’t default, they will be making interest on their investment and eventually receive all of their money back and then some. Still, if there is economic stress on certain individuals, we may tip over to a buyer’s market longer than expected as distressed sellers try to sell their property.
Of course not all real estate sectors may be affected by Covid-19 in the same way. Commercial leasing may be hit the hardest as some businesses may take longer to bounce back, and may not have to capital to last as long as needed. I suspect the high end market of the residential sector may be the least impacted as many of the people in this category may be able to withstand a market correction of small or larger proportions if one comes. Condos that were previously AirBnb may see more investors trying to sell their investments if international travel may be the one of the last industries to bounce back.
Even with the pressure on commercial leases, I have heard unofficial chatter that there are talks around a vacancy tax in Toronto that will encourage landlords to keep their tenants to avoid having to pay that tax.
Again, this is very early guess-work. There are just too many variables to know what’s going to happen in the months ahead. But, I’m feeling optimistic for the first time this week. I know we have a long way to go, but I’m heartened that there are regions out there where the curve is bending. Even in countries where the spread of Covid-19 was tragic, we are seeing fewer daily new cases. The stock market is not plummeting any more. We have many more days ahead of us, but I feel there will be a series of small victories soon. Maybe not as soon as we like them, but they’re coming.