Did Canada Mortgage and Housing Corp. (CMHC) get it wrong about the national housing sector, particularly the Vancouver and Toronto real estate markets? In the aftermath of the peak of the coronavirus pandemic, the mortgage loan insurance Crown Corporation warned of a sharp decline in housing prices, forecasting a plunge of as much as 18% over the next 12 months.
Many industry observers dismissed the warning, calling it “panic-inducing and irresponsible.” So far, it seems like the skepticism is justified as the Canadian real estate market is on a steady rebound. Although most of the country’s housing markets are undervalued, a lot of cities and regions are experiencing renewed sales activity and a bump in prices a couple of months after the province-wide lockdown.
Have things returned to normal in Canada’s largest city? Real estate is booming in Toronto again, but there are also some unique trends unfolding in property ownership and the rental market.
Toronto Real Estate: Sales vs. Rental Trends
It continued to be a record-breaking August for Toronto real estate, with the Toronto Regional Real Estate Board reporting more than 10,775 homes trading hands – a 40.3% increase compared to the same time a year ago. Detached homes and condominiums continued to post impressive numbers.
A lot of people had anticipated the public health crisis and subsequent recession would crash one of the world’s hottest markets. But the opposite conditions have unfolded. When a two-bedroom, one-bathroom tiny-home near Little Italy is selling for $999,999 and captures local headlines, it is evident that Toronto is roaring again. But is it sustainable?
The Bank of Canada (BoC) recently signalled that it is keeping its historically low interest rates unchanged for the foreseeable future. Plus, the major banks and the federal government have revealed that they are willing to employ every appropriate measure to prop up the housing sector. These factors are instilling confidence in not just the real estate industry, but also in the broader financial markets.
But what is happening in the rental market? Things are a little bit different for apartments and condos.
For the first time in years, rents have softened, giving renters an advantage in a market that had been extraordinarily tight. According to TRREB’s Q2 rental market report, the number of condo rental units on the market surged 42% in the second quarter from the same time a year ago. These units have also decreased in price by about 5%, pegging the average monthly rate for a one-bedroom apartment at $2,083.
“Following very tight market conditions in 2018, we have seen a consistent trend toward balance in the GTA condominium apartment rental market over the past year-and-a-half. Accelerating growth in rental listings were at the root of this trend, but the COVID-19- related drop-off in rental transactions had a marked impact as well. Increased choice led to more negotiating power for renters, resulting in year-over-year declines in average rents in the second quarter of 2020,” said Jason Mercer, TRREB’s Chief Market Analyst, in a statement.
TorontoRental.com examined some of the neighbourhoods that have experienced significant declines in rent. In its “Toronto GTA July Rent Report 2020,” the website found that rent in the Waterfront Communities of Toronto is down 10%, Little Portugal has slumped 11%, and South Parkdale has witnessed a 12% slide. One of the few areas of the city to see an increase was North St. James Town, with a 10% gain in average rent.
As a result, many buildings across the city are beginning to offer incentives again, such as one month of free rent, a discount, or a free television. This was common about a decade ago, but with the vacancy rate as low as it had been, property management companies had little need to entice renters with additional perks.
There are three key factors at play which can explain this surprising development:
- First, there is a greater supply of rental units in the city’s core, which has been matched by a decline in demand. A contributing factor has been the lack of movement of immigrants, foreign students and out-of-province workers.
- Second, many condo units that were previously listed on Airbnb as short-term rentals have been converted to long-term rentals.
- Finally, the province’s eviction freeze has been lifted, so analysts are sounding the alarm about an uptick in eviction numbers over the next few months.
If you’re on the look-out for an apartment to rent, you’re in luck. Could this be a permanent trend? The Greater Toronto Area attracts approximately 100,000 new immigrants each year. With immigration down amid the decline in international travel, the housing market may not have that injection of demand. Moreover, Queen’s Park recently removed rent controls on new rental units, which has added inventory to the overall market. The permanence of this softened market depends largely on a swing in demand, and with immigration temporarily stalled, the timing of this swing remains unknown.
The New Normal
The Canadian real estate market has been resilient, mainly due to the tireless efforts of agents who have worked through the coronavirus pandemic and took advantage of digital tools to service their clients. In Toronto, the hallmarks of a hot market are back with a vengeance: bidding wars, bully bids, and blind auctions. Despite a slowdown at the height of the virus outbreak and bearish real estate estimates, North America’s fourth-largest city has rebounded admirably.
Pent-up demand, falling mortgage costs, and cheap money are likely to dispel the CMHC’s dire report this past spring. The current landscape is beneficial for sellers and renters. But for how long? That is the $999,999 question.