Tuesday, January 12, 2021 / by Sushma Khinvasara
In the first part, we looked at the general trends for 2020 and 2021 in the country. In this blog, we will be focusing on the housing trends in Toronto. Housing demand in the second half of 2020 exceeded expectations.
The Rise of the Total Price of HomesIn a battle to keep up with the supply and demand of homes available for sale, driving home prices higher and pushing unmet buyer demand into the new year. According to the Royal LePage Market Survey Forecast, the total price of a home in Canada is projected to rise by 5.5% year-over-year to $746,100 in 2021, with the average price of a two-story detached house and condominium projected to rise by 6.0% and 2.25% to $890,100 and $522,700, respectively.
"The leading indicators we analyze are pointing to a market that favors property sellers in the all-important spring of 2021," said Phil Soper, president, and CEO, Royal LePage. "Across the country, a large number of hopeful buyers intent on improving their housing situation were not able to find the home they were looking for this year, as the inventory of properties for sale came nowhere near to meeting surging demand. With policymakers all but promising record low, industry supportive interest rates to continue, we do not see this imbalance improving in the new year. The upward pressure on home prices will continue. There was a clear shift towards larger properties and single-family dwellings in 2020, as families repurposed homes to become their office, school classroom, gymnasium, and restaurant during the pandemic," Soper continued. "We expect this trend to moderate as life returns to normal in the months ahead. It is also worth noting, that Canada welcomed a new generation of first-time homeowners this year, encouraged by lower financing costs and softer demand for city center condominiums. Urban living remains attractive for many."
In the coming year, the value of single-family homes and homes outside major urban markets is projected to continue to outpace urban core condominiums, driven both by Canadians seeking larger homes in a time when remote work has become more prevalent, and broad-based demographic trends, including retirement for baby-boomers. As listings in city centers become more competitive against rising prices in suburban and exurban markets, the trend of high demand outside urban centers will slowly ease.
Immigration, both indirectly and directly through housing demand, is critical to the housing market, as it supports economic growth. In October, a significant jump from previous years, the federal government announced its plan to add more than 1.2 million immigrants over three years. Both the resale market and development demand for rental condominiums are supportive of a rise in immigration.
7.5% Rise of Median Price of a Standard Two-Storey Home in GTA
Also, The median price of a standard two-story home in the GTA is expected to rise 7.5 percent next year, reaching an average price point of $1,185,800, according to a new Royal LePage forecast. Throughout the second half of this year, the whole country saw housing demand surpass expectations, Royal LePage states. According to the report, “the value of single-family houses and homes outside of major urban markets are forecast to continue to outpace city core condominiums” through 2021. This is a development that will be motivated by different variables, including the retirement of baby boomers, including Canadians searching for larger homes during the remote-work period, and "broad-based demographic trends."
"Single-family homes remain in high demand. We expect lighter activity as we near the winter holidays but if inventory does not improve in early 2021, we could have another year of strong price appreciation," said Debra Harris, vice president, Royal LePage Real Estate Services Ltd. "Low inventory is expected to put upward pressure on prices but we could see low unit sales if there isn't a product to sell."
"Many young people returned home to save money during the pandemic and we expect them to want to get back into city life when the vaccine becomes available. The question is whether consumer confidence in the condo market will be healthy given the surge in listings. The reality is that current inventory is much healthier than where we were last year," said Harris. "For the many young professionals who were discouraged by strong competition in the condo market in previous years, this window may be their opportunity to find a home they can get excited about living in."
With higher demand for larger units in the 905 regions, output within the condominium segment is expected to remain volatile. Harris added that while condominium listings have recently surged, the traditionally starving condo market in Toronto can handle a rise in condo stock without dramatically affecting the price in the short term. With the fresh and ambitious immigration goals of the federal government as well as the anticipated return of rental demand from university students in the fall, in the second half of the year, resale demand for condominiums could be considerably higher.
Toronto can also expect the average home prices forecast to grow another 6% this 2021. RE/MAX does not see the upward trend slowing down anytime soon with average Toronto home prices have already increased by 12 percent (year-over-year) in the first 10 months of 2020. Increasing demand and rising prices will characterize this push, ultimately affecting the activity and putting upward pressure on prices. As a result, if the Toronto Housing Market Outlook report from Re/MAX proves correct, by the end of next year, that average will climb to $974,015 across all types of property.
Economists Predict Toronto Real Estate to Experience a 5% Rise This 2021 SpringEconomists also expect Toronto real estate to experience a 5% increase this 2021 spring as per their survey. The survey also showed that zero economists, compared to 44 percent in the July study, currently regard housing affordability favorably. Moreover, for spring 2021, analysts predicted only average growth (3 percent) in residential housing prices, with Toronto projected to see the highest average rise (5 percent) during the spring.
“Much of the pent up demand that was released by lower interest rates and the end of the first lockdowns has been spent. With limited population growth due to immigration restrictions, the ending of some mortgage deferral programs, ongoing employment weakness and lack of consumer confidence, some parts of the housing market, especially high-density condos are likely to be very weak,” said Chief economist and head of market analytics for CoStar Group, Carl Gomez.
Gomez, on the other hand, says that single detached homes in suburban and exurban areas will continue to see high equity demand from urban buyers.
Benjamin Tal, CIBC's managing director, and deputy chief economist agrees with Gomez that in the near term, condos may see some softening, but he expects a "very strong spring market."
Concordia University senior lecturer Moshe Lander claims that because of the change to operating from home, there is continued interest in the housing market, causing people to re-evaluate their housing choices.
“Real estate continues to defy predictions of its impending collapse. As the economy starts to change irrevocably toward a post-pandemic world, more people are reaching the conclusion that home and work will become entwined more intimately in the future and that living space needs to be reviewed to accommodate such a future,” says Lander.
Looking at the spring economy, the economists said that we should expect small rises in home prices in Canada's major markets.
During the height of the spring market, eleven panelists expected an overall rise of 3 percent, but Toronto and Winnipeg tied for the highest projected increases (5 percent), with Vancouver and Hamilton rounded out the top three with an increase of 4 percent. With each city included in the study expecting to see property prices rise by an average of 3 percent, there is not much difference expected between cities.
This comes as RE/MAX has recently predicted that home prices in Toronto will rise up to 6 % in 2021, relative to the 12-month average in 2019, after rising 12 % in the first 10 months of this year.
In 2020, the average price of Toronto real estate rose to $918,883 (January 1 to October 31) relative to $819,832 in 2019 (January 1 to December 31). As a result, if Re/MAX’s Toronto Housing Market Forecast report is correct, the average will climb to $974,015 for all property categories by the end of next year.
Rents Will Rise and Fall by 13% to 14%
Lastly, according to the new GTA rent survey from TorontoRentals.com and Bullpen Research and Consulting Toronto, in November, the average bid for monthly rent in the GTA for all forms of the property fell more than 16 percent year-over-year to $2,056, marking a full-year fall. But the recent study indicates that dropping rentals in Toronto could have an end in sight after months of decreasing average rents, as Bullpen Research & Consulting expects double-digit rent increases for apartments (condo and rental) in 2022, following a slight improvement in 2021. In Toronto, rents are projected to fall until mid-2021, according to the study, and then steadily rebound in late 2021 before increasing 'sharply' in 2022, ending the year up 13 percent to 14 percent annually.
“Our forecasts call for even lower rents in the first half of 2021, with a modest rise in the second half of the year,” said Ben Myers, president of Bullpen Research & Marketing. “However, we expect a substantial bounce back in 2022, with rents increasing by double-digits with a mad rush back into the downtown Toronto market.”
In Toronto, Toronto's annual pre-amalgamation rent begins to witness drastic cost declines, with average rent increases in November year-over-year approaching -19 percent.
On a broader basis, rentals for one and two bedrooms are also lowered by around 15 percent year-over-year for GTA average rents, $1,827 for a one-bedroom, and $2,288 for a two-bedroom. This is equivalent to a possible saving for prospective renters of $330 and $390, respectively, from one year ago, according to the study.
With a second province-wide lockdown going into effect, however, and several workers choosing to operate from home, the study reports that any rapid rent turnaround is not anticipated within the next four to six months in Toronto or the GTA, which remains positive news for those hoping to enter the rental market in the immediate future.
Toronto can expect plenty of numbers and trends going about this coming year but as always, even in trying times, it will always find a way to thrive. The best is yet to come this year for the housing market so it's best we buckle up and get ready.
If you are currently in the market to buy or sell a home and need help, you can contact me at 647-834-9928 or email me at firstname.lastname@example.org