Condo Owners “Handcuffed” in the Toronto Real Estate Market?

Increasing valuations and surging rents had been the hallmarks of the Toronto real estate market, particularly for condominiums, in the years following the 2008-2009 Great Recession. The staggering demand for dense downtown housing, as well as investor speculation and short-term rentals, contributed to one of the hottest housing markets in the world.

Then the COVID-19 public health crisis happened.

Like other major urban centres, the coronavirus pandemic has altered the residential landscape in Toronto, which has become associated with an enormous inventory of tiny and ultra-expensive condominiums. North America’s fourth-largest city is enduring a two-pronged problem. The first is that Airbnb hosts are selling their vacant short-term units, with borders closed to non-essential travel, and short-term rental rules tightened last year. The second is that people are fleeing the hyper-dense city for green pastures in rural communities.

This begs the question: can condo owners sell their units in a market plagued by dwindling demand and surging inventory? Many savvy investors who got in on the ground floor in the last decade will likely turn a profit when they secure a buyer. However, somebody who acquired a one- or two-bedroom suite in the last couple of years may find it harder to make money off the property and use the proceeds to upgrade to a detached or semi-detached house.

Ultimately, some Toronto condo owners may be feeling trapped by a large inventory of condos, most of which had been erected in the last few years. Or, as Dale-Paul Jordan, who listed his Toronto condo, told Reuters: “One of the things we’re handcuffed to is selling our condo to help with the down payment.” But does the data reflect the notion that condo owners in the Toronto real estate market are handcuffed? Let’s explore!

Condo Owners in the Toronto Real Estate Market

Sales activity and prices slowed down in the fall, while condo stocks intensified across the city.

According to the Toronto Regional Real Estate Board (TRREB), average Toronto condo prices tumbled 4.7 per cent year-over-year in December to $625,828, a contrast to the 8.1-per-cent growth in the average detached home price ($1,475,758).

Could this be the new norm, at least temporarily?

Recent TRREB data highlights that condo inventories more than doubled in the Greater Toronto Area. This has been a remarkable turn of events, because the broader real estate sector is booming in Toronto and the surrounding areas.

TRREB’s Chief Market Analyst Jason Mercer noted in the report, “there was a dichotomy between the single-family market segments and the condominium apartment segment. The supply of single-family homes remained constrained resulting in strong competition between buyers and double-digit price increases. In contrast, growth in condo listings far-outstripped growth in sales. Increased choice for condo buyers ultimately led to more bargaining power and a year-over-year dip in average condo selling prices during the last few months of the year.”

For now, it seems as though Toronto condo owners looking to leave the city have two options: stay put or sell the unit at a deep discount. But perhaps 2021 will offer more options for “handcuffed” homebuyers.

A Rebound in the Condo Market in 2021?

It is widely expected that many of the public policy health guidelines will remain intact in the first half of 2021. This includes immigration controls and a crackdown on short-term rentals (Airbnb). But the second half of the year could see heated market activity, with more Canadians immunized with the coronavirus vaccine and consumers holding about $200 billion in savings.

Although there has been some speculation that the Bank of Canada (BoC) could be the first central bank to tighten monetary policy, the institution has yet to send any signals that it would raise interest rates anytime soon. In other words, the BoC’s benchmark lending rate of 0.25 per cent and the five-year mortgage rate of below five per cent are unlikely to change in 2021 and possibly in 2022. Put simply, borrowing has never been cheaper, which is allowing new homebuyers to delve into the real estate market.

Another lingering question impacting the direction of Toronto real estate: if life returns to some semblance of normalcy following widespread vaccinations of Canadians, will corporations maintain their work-from-home policies? Google recently announced that the company would have employees return to the office in September and only experiment with flexible telecommuting a few days per week. This matters because many professionals have been enjoying newfound freedom over the last several months and some have migrated to regions further from their place of employment, soaking up the luxury of no daily commute coupled with quieter rural living.

But this could potentially change toward the end of 2021, with businesses returning to their commercial workspaces. Will this translate to a wave of homebuyers (and condo seekers) returning the big cities? Should this wave start to trickle back to the city sooner rather than later, this along with the other strong demand trends forecasted for the coming year, should provide some relief for handcuffed condo owners in Canada’s largest real estate market.