COVID-19 Real Estate: Where Are We Now?
Now more than ever, active and informed Real Estate advice matters. Toronto’s Real Estate Market went from an overheating Seller’s market to a Buyer’s market in as little as two weeks. The market started 2020 with prices skyrocketing 10% in most neighbourhoods from the end of 2019 to early March 2020. Like many industries, as the reality of COVID-19 hit Toronto, demand sunk. Real Estate has been deemed an essential service by the province of Ontario and those needing to sell rent or buy, to secure shelter or finances have been permitted to do so.
For Seller’s, marketing their property has become more complicated. Reducing the number of people who go through a home during a global pandemic is the responsible thing to do. However, some Sellers and their Realtors have continued to under-price properties to draw multiple buyers, a strategy which has succeeded for some and backfired for others.
As National Sales data rolled in, media outlets like The Toronto Star printed headlines like “Prices Continue to Rise In Toronto Despite COVID-19”. This headline dated March 23 did not represent the reality of current market conditions, something that is difficult for any journalist to capture in this rapidly changing environment. By the time this Blog is written, communicated and read, other changes are likely to be in place. We are surrounded by sensationalized headlines on a daily basis and this crisis is challenging our ability to think and act rationally. Even computer programs driven by data will be hampered, as programmers are unable to react in step with market conditions to retool their algorithms. As monthly and yearly sales data remains important, weekly data and anecdotal evidence will increase in importance when trying to understand what is happening right now.
What has changed to Toronto Real Estate Landscape since COVID-19 landed in Toronto:
Pricing and Prices: My last Blog post talked about how quickly prices had increased to start 2020, in the 10% range in most cases. As COVID took hold, Toronto’s prices in most neighbourhoods and segments have begun retreating just as quickly. Average year over year price appreciation came in up 14.5% in March, but the first half of March was a different story from the second half. The average price actually dropped from February ($910,000) to March ($903,000). While in most cases sale prices in April are coming in higher than 2019 prices, February highs are not likely to be reached again this year.
Prior to COVID, properties were typically under-listed and sold above the list price. Some homes are still selling above list, but most are selling at or below the list price in current conditions.
Conditional Offers: In a hot market, Buyers due diligence period is condensed to less than a week, firm offers are expected and conditional sales are typically not accepted. The market shift has increased Buyers ability to extend their due diligence period. New COVID specific conditions are being used, and if the market remains in Buyers favour, conditional offers are certain to become the norm.
Virtual Selling: More Realtors have embraced selling real estate virtually, with some deals being done without the Buyer ever stepping inside the home. Virtual tours and floor plans have always been an important part of many people’s marketing and now they will play an even greater role. Virtual open houses where an agent takes a video of the property have replaced in-person open houses which are currently prohibited.
The Rental Market: As reported in this Bloomberg Article, 30% of renters didn’t pay rent for April. Understandably the demand for rentals has plummeted. Layoffs and border closings have all but halted this market for the time being. Tenants are still required to pay rent, but evictions cannot be enforced at this time.
As listings in the rental market continue to build with little demand, prices are falling. Many landlords who are caught at the end of a lease term or who are new to market will have a great challenge finding a tenant at the expected price. Giving tenants new negotiating power they have not seen for some time in Toronto. Tenants are reminded they are still liable for any rent commitments while landlords are encouraged to work with their tenants to create a payment plan that reflects current realities.
A year ago, I wrote about the fact that condo rental supply was increasing. In fact, Q4 of 2019 represented the 6th consecutive quarter with double digit supply increases via TREBs MLS system. This supply has been supported by strong demand to live in Toronto. Urbanation recently reported that Toronto’s vacancy rate increased from 0.8% in Q1 2019 to 1.1% in Q1 2020. A continued increase in supply, tenants inability to pay rent and a drop in demand caused by COVID is quickly changing investor’s resilience in these challenging times.
Litigious Environment: Fast moving markets typically lead to more litigation. Some Buyers may not be capable of closing because of job losses, inability to sell their home, and some will simply become litigious because they don’t like seeing that their recent purchase has dropped in value. The fact that your purchase is worth less now, or that you lost your job, does not negate the contractual commitment you made to Buying a home. It is important to have a good understanding of what terms you need to include in your Agreement of Purchase and Sale and the extra risks associated with Buying and Selling under current conditions.
Government Intervention:
Various levels of government have taken some extreme measures to help support the Real Estate and other industries in this crisis. Mortgage Deferral, Property Tax Deferral, Interest Rate Cuts, Mortgage Purchases, Tenant Protection, are some of the moves made by various levels of government and the Bank of Canada to help and prevent the market from collapsing.
Housing Demand and Supply
Sales:
Demand has dropped drastically in a matter of two weeks beginning in mid March. Few Buyers are motivated to purchase a property in a global pandemic. In February, year over year sales were up a whopping 45% in the GTA. In March, year over year sales increased by 12%; however, the change between the first and second half of March were notable. Sales for Toronto in April are on pace to be between 850 – 900 down over 70% from April 2019.
Active Listings:
The market started the year under-supplied for the surge in demand that took place. Active listings in February and March were more than 30% lower than the same time in 2019. Currently, active listings in Toronto are around 3,200, down about 40% from where April 2019 finished.
Sales to Active Listing in April is likely to come in around 25% – a Buyers Market, down from 60% when compared to April 2019. In February, Toronto’s Sales to Active Listing was 91%
Housing Completions:
Completions are likely to be much lower than anticipated in 2020 as many will be delayed. Increased unemployment will complicate closings as finding financing through both traditional and non-traditional methods will be challenging.
Other:
When April statistics are referenced they should be taken with a grain of salt. The city is adhering to social distancing and quarantine measures imposed by governments which makes April 2020 nearly incomparable to any other period in recent history. What we do know is that demand has been immediately lowered and people’s ability to purchase a home has been significantly impacted. The unemployment rate jumped 2.2% from February to 7.8% in March the highest increase on record with comparable data. Bloomberg has reported that there were over 600,000 mortgage deferrals (12% of the big 6 banks) and 6 million Canadians applied for income support as of April 9th.
The government of Canada has yet to release any statements indicating that COVID has impacted immigration. However, with international borders closed, there will be a delay in the number of new immigrants arriving in Toronto to fill empty apartments and purchase available housing.
Mortgage deferrals and income subsidy will provide needed relief for many Canadians; however, even with a quick recovery unemployment rates are not likely to return to pre-COVID levels for a long time. When mortgage deferral periods run out, for some, mortgage defaults will become a reality and some will be forced to sell their home at a time when demand is unlikely to have rebounded.
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Some will use the information at hand to see the worst, while others will see it as providing them the opportunity they have been waiting for. Nobody knows exactly what is around the corner.
It makes sense to look back to help understand what might be to come. Many are referencing past financial calamities for comparison. Some are making comparisons to the great depression. The COVID crisis will be challenging for most of us, but we should also try to keep some perspective when making comparisons. Prior to the Great Depression, the average Canadian certainly wasn’t taking an annual vacation to the Caribbean, grabbing Uber Eats on the regular, or even participating in organized sport. If a global pandemic forces us to shift our priorities to care for the vulnerable, reduce our impact on the natural environment, and spend more time with those who play the most prominent role in our lives, then so be it.
