The 2020 forecast
Well it’s apparent that the time that we’ve grown accustom for the start of the GTA’s Spring market is simply not on that timeline this year, as 2020 clearly did not get that memo. TREB released its 2019 year in review last week and we were able to see some more concrete numbers on how 2019 finished up as a whole as well as where the forecast is heading for this year’s housing market.
Sales this January were up 15.4% compared to this time last year and the same pattern continues with how 2019 finished with less New and Active listings causing lower months of inventory which has us completely back into a Sellers market.
So hold onto your hats folks as the year end numbers found that the average sale price was up 4% last year (which is great), but they are predicting that homes could reach an upwards of 9.8% this year!!
Rumours of a Bank of Canada’s overnight rate drop, partnered with low mortgage rates and the shortage of listings could easily see the prices pushed to rise this high if this rumour came to fruition. This would make it easier to qualify for a home purchase, putting more buyers out into the fold.
The Buyers are back and they are back with a vengeance. These are not a new wave of Buyers either, these are the ones that had trouble qualifying with Mortgage Stress tests and fence sitters waiting out the market only to realize this boat is leaving without them whether they like it or not. So they’re back and back with some confidence this time around.
Multiple offers have kindly made their return as well as holding offer dates, bully offers and some of the silly listing games that were played back in 2016. I’m clearly not a fan of this kind of market as I have lived through the last one and didn’t enjoy the games.
This is the kind of market that’s perfect for anyone thinking of Selling but you have other factors to consider in a market like this than simply cashing in. Like for instance, where are you going to go? If you Sell in a hot market, you still have to buy in a hot market. Are you going somewhere a little more relaxed? Are you downsizing?
I let clients sell their home in Oakville for a pretty penny last year and now they moved out to the outskirts of London in a little community, now mortgage free and a few hundred thousand dollars working for them in investments to then re-invest back into real estate when they are ready. How can you cash in?
Are you upsizing? This could work for you as well in this market. What are you upsizing from? In what market are you in? Condos have shot up in price over the last year, while detached only incrementally in areas. You could make more on the sale of your condo and maybe avoid a multiple offer scenario on a detached as well.
So what’s going to drive our market this year? As we know there is definitely some economic uncertainty out there for 2020. Historic lows in unemployment in the GTA is currently looking to stay low and we’ll have to keep watch on international trades and how they will impact our economy as well.
As mentioned the potential drop of the BOC overnight rate and lower mortgage rates will also help drive this years market as well, immigration is always a factor and many new immigrants tend to be lured to the GTA area over some of the other areas of Canada. All of these households will require a place to live, whether it’s in the rental market or purchasing a home.
With the Greenbelt to the North of the city of Toronto and Lake Ontario to the south, there are limited options for where we can build housing, so the only place we can go is up or tear down what’s already here and use the space more effectively. Infill is the best case scenario as I have been saying for years they need to build more family friendly units in the city. To tear down these old buildings and build good family sized, low rise condo buildings is a fantastic option over the rumoured laneway apartments and shoebox condos.
As you can see parking lots are becoming a thing of the past as they are being bought up and built upon and the parking is then shifted underground or incorporated into the building somehow. We are running out of room and we can really only build up, hence the craziness of the condo market. It was the most affordable option to many buyers and it had the some of the largest supply.
Many are leaving the city of Toronto as well and heading North to Orangeville and Sherbourne area, East to Durham region and west out to Hamilton, Stoney Creek etc. They are able to afford more home this way but have to give up something. Many are choosing to give up their desired area and some drive time over the type of home they can live in. Opting to choose to drive or use transit to get to work.
This is a market where unless you have the money, you are likely not going to tick off every box on your wants and needs list, so you better have a sit down with your partner and work out what the most important things you have to have and work out a plan from there. Then you can call me, or call me before and I’d be happy to work out a plan as well.
Renters…you there? Well this is what’s likely coming down the pipeline in this market. So one and two bedroom units made up 94% of the available rental stock in 2019. So for those investors, you can see what is a safer bet as a purchase to rent out.
So many also prefer to rent as this options does offer more flexibility to move around, but in turn at the end of a lease term all you have to show for it is a few receipts. Rental transactions were up 13.5 percent last year and the relationship between the ongoing issue of supply and demand can be estimated using the rental-to-listed ratio (RLR).
In 2017 and 2018, the RLR was at its highest level of the decade – sitting at above 75% in both of those years. This would suggest that the level of competition between renters for available condominium apartments was rather intense, pushing the annual rate of the average rent growth above 9% in both years which is phenomenal if you’re a landlord. As they say, “Landlords grow rich in their sleep.”
The average one bedroom condo was around $2201 which was up 5.4% from the year before which is a more moderate growth rate than the previous year that was almost 10%. Which goes to show that while rental rates will likely continue to climb, they have slowed down from the frenzied pace at which they were going a couple years back. The average 2 bedroom condo is $2874 up 4.5% down from a 7.9% increase the previous year.
When it comes down to it we are just not making homes and condos fast enough to keep up with the demand. Many savvy home buyers are opting to try to rent out their condos and try their luck in the landlord game and use the equity they have accumulated to try to buy their next home and build on their real estate portfolio.
Just keep listening for the issues of supply and demand….this will not be going anywhere anytime soon and this will be one main factor that continues to drive the rental market. For those looking to buy in the future, you will be hard pressed to save up money for a down payment with the costs of rental units nowadays. Some people are getting creative in their efforts, combining with trusted friends and family and buying a place together.
Whatever starts to build you some equity to give you more buying power in the years to come, just go for it. I tip my hat to you for being forward thinking and going after the dream and not paying attention to the obstacles. In time, you’ll be so glad that you did. There is always an option and there’s always a way.
So there you have it in a nutshell. This year is going to be a busy one with only a handful of factors that could take this market off track but it’s not looking to be very likely. If you’re thinking of getting into the market I would say the sooner the better if you can as with every successful sale a new bar is set for pricing and the longer you wait the closer we inch to the predicted 9.8% potential increase.
Making a move now could honestly save you an additional $60K on a $600,000 purchase for example. Have any questions or need to make a game plan, give me a call. I study over 5 markets and am a member of three real estate boards so I’m privy to a ton of information to better serve you.
Thanks for reading!