In only a few short months, the COVID-19 pandemic decimated the global economy and permanently altered our lives. When the world rang in a new decade, nobody could have envisioned a virus outbreak and the resulting “new normal” for consumers, businesses and governments for the years to come. Some experts forecast that it could take years before we return to any semblance of normalcy, whether in the way we interact with each other or how financial markets function.
Since the public health crisis has affected every facet of the economy worldwide, all eyes have been on the red-hot Canadian real estate market. Closer to home, buyers and owners alike are waiting to see if Toronto will finally witness a drop in condominium and house prices. While it’s difficult to project long-term trends, recent figures indicate real estate Toronto prices are far from crashing.
Did April Showers Bring May Flowers?
In April, the economic fallout of COVID-19 and the many social distancing guidelines triggered a deep freeze in the Toronto regional real estate market. A month later, there was an unexpected rebound.
According to May figures released by the Toronto Regional Real Estate Board (TRREB), home prices in Toronto and across the GTA were up 3 per cent year-over-year, to $863,599. In the 416 area, detached houses climbed 2.7 per cent and condos picked up 1.8 per cent. However, fewer transactions are taking place, with 4,606 properties changing hands in May – a 53.7-per-cent decline year-over-year but up 55.2 per cent compared to April 2020.
Overall, the real estate market has held steady throughout the financial crisis. While transactions have slumped since the coronavirus pandemic crippled the Canadian economy, average prices have remained resilient.
Why Have Toronto Real Estate Prices Not Crashed?
So, what is happening in one of the country’s hottest markets? The broader numbers show many people out of work, businesses shut down and rising household debt levels. At the same time, there has been sustained activity in the number of buyers compared to available listings. This is one of the chief factors in supporting price growth relative to last year’s pace, despite shifting market conditions.
Those who have kept their employment and refrained from dipping into their down-payment savings are in a good position to take advantage of lower borrowing costs. In March, the Bank of Canada (BoC) imposed a 50-basis-point emergency cut to interest rate, lowering its benchmark rate to 0.25 per cent. This is allowing buyers to borrow greater amounts of money at a lower cost over time. The institution has also pumped billions of liquidity into the financial system, making lenders more confident in issuing loans.
The federal government has employed measures to prevent a full-blown economic meltdown. Canada Mortgage and Housing Corp. (CMHC) has supported lenders to cover the cost of mortgage deferrals. In a broader policy tool, the government implemented a wage subsidy program to help employers keep staff on payroll, helping millions continue to collect paycheques and cover their bills.
According to the Canadian Bankers Association (CBA), approximately half a million big-bank borrowers have been approved for mortgage payment deferrals during the pandemic. Banks are ostensibly already planning to work with customers in establishing flexible repayment plans. This has prevented homeowners from flooding the market with properties to avoid defaults.
Put simply, there are still plenty of buyers due to the market-friendly monetary and fiscal conditions driven by Ottawa and the central bank.
The Use of Technology in Real Estate
Another reason for the healthy level of activity within the Toronto real estate market is the commendable and innovative solutions adopted by real estate professionals to help transactions take place as smoothly and safely as possible.
The sector has done an incredible job adapting to the situation. At the beginning of the pandemic, the Ontario government announced that real estate offices were an essential service, allowing them to continue operating during this chaotic time. But the real estate industry has taken other necessary precautions as well.
To mitigate any health risks, realtors have utilized technology to support the home-buying process. They have leveraged digital listings, virtual tours, video conferencing, e-document and electronic signatures. When in-person showings are required, agents have continued to show properties under strict safety measures that include wearing face masks and gloves, having scheduled appointment, and showing the house or unit to no more than two adults at a given time.
What is the Future of Toronto Real Estate?
Over the last 6 weeks, there have been some dire projections for Toronto and the national real estate market. However, as the plethora of economic data has already highlighted, many of the findings are a lot better than what was forecasted earlier in the pandemic. Although the industry consensus is that the future is uncertain, the economics of the outbreak suggests it is not all storm clouds ahead. The fundamentals of the housing market are the same as they were before the pandemic: a huge demand and a short supply. This has not changed, and until it does, you can expect real estate prices in Toronto will not crash.