Real Metrics – September 2020 Edition
The GTA real estate market reports a record sales month in August on pent-up demand
The Toronto real estate market had another robust sales month continuing the trend in July. Summer – particularly August – is typically a slower period for the industry due to holidays. However, the normally strong Spring market never appeared due to the COVID shutdowns. So some of this strength was a function of pent-up demand from the Spring. On a year to date basis, sales volumes in the GTA are about 4%
Exhibit 1: Year to date sales in the GTA are nearly flat vs 2019 after being down 22% at the end of May
In Exhibit 2, we differentiate volumes between condos and detached homes and compare them with price trends. Condo sales volumes have been particularly weak while detached home sales volumes have been notably better in comparison. As one would expect, pricing trends typically follow volume. That is, price action for detached homes are also comparatively better than condos. To be sure, these are trends that had been developing pre-COVID, but have accelerated since.
Exhibit 2: Sales vs Volume trends since January
It has been well-documented that many are moving away from densely populated areas like the downtown core. As the work from home trend for many office employees has been extended for many into late 2020 and beyond, the need for additional space and green space, and a desire for better quality of life, many buyers are looking to neighbourhoods further from the more densely populated city core. We expect condo price growth to slow significantly due to increased inventory. This has been driven by very weak condo rental markets (particularly in the downtown core), changes in short term rental rules, newly constructed condo units hitting the market, and lower immigration and foreign student populations, resulting in many condo investors selling their units.
As of this writing, there were some 1,816 condos available for sale in C01 (downtown west) which is a record high and 296% increase from the end of March. To put this in perspective, 331 condos have sold in C01 in the past 30 days, which implies inventory is currently at 5.5 months of sales in this neighbourhood. Just a short five months ago, inventory was 1.3 months of supply. As we outlined in past writings, the condo market has been hard hit due to high vacancy rates in downtown condos which has hurt the returns for many investors. Changing rules on short term rentals, combined with low immigration and student populations, and migration to outlying neighbourhoods have been the main causes for the high vacancy levels. Many investors that are unable to find tenants but continue to bear carrying costs (mortgage, maintenance fees, etc.) are looking to off-load their condo investments. We suspect that some investors may have applied for mortgage deferrals (up to six months) that were offered by their lenders. The end of the deferral period is approaching, and payments will have to be resumed. For those without tenants it’s a foreseeable possibility that some of these units will go into default.
Certain other condo markets such as in areas of North York have actually been quite stable and balanced. C07, C14 and C15 are still showing stable fundamentals with months of inventory inline with historical averages – see Exhibit 3. We suspect that the reasons for the stark difference is multifold: 1) there were fewer short term rental units in North York vs. downtown, 2) there are more families living in North York which is a more stable demographic, 3) there is higher demand for neighbourhoods outside of the downtown core, and 4) fewer newly built condos that have hit the market.
Exhibit 3: Condo Market in North York is much more balanced vs downtown – end of August 2020
As we’ve said before, we see some short to mid-term pain in the condo markets (particularly downtown) but anticipate things will eventually balance themselves out when immigration and travel resumes, which will be highly dependent on when COVID gets under control (via vaccine or otherwise). In our opinion, Toronto remains a world class destination for many due to its diversity, and relative stability. The long term fundamentals of the city remain sound. For would be buyers, the next 12 months could be the opportune time.
Exhibit 4: Summary of Activity by Region and Property Type – August 2020*
Exhibit 5: Summary of Activity: August 2020 – Detached Homes
Exhibit 6: Summary of Activity: August 2020 – Condo Apartments
For more charts and price data, please access our report in pdf form here.
Take care and we look forward to hearing from you!
Jenny & Justin Wu
RE/MAX Hallmark Realty Ltd.
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