Is The Toronto Condo Market a Lost Cause?
Friday Nov 06th, 2020
It seems the impossible has happened… the once flaming Toronto Condo market, has cooled down. Both the resale and rental market have been heavily impacted, with many investors feeling the pain. A complete elimination of Airbnb, high vacancy rates, rapidly declining rental rates and high days on market (DOM) have been leading many investors to sell their once sought ofter properties, thus adding to the supply. So, let’s take a look at what is happening.
The pandemic has created an interesting dichotomy between the freehold market, particularly in the 905, and the downtown condo market. The latest October numbers show an 18% year-over-year increase in average sale price in the detached freehold sector in the 905 , 11.2% in the 416. But, only a 0.8% increase in 416 condos. Just a year ago, the condo segment was the primary driver for growth in the Toronto housing market, so this is a tremendous shift!
The Exodus Away From the Downtown Core
COVID has changed the way we live our lives and the way we make decisions. This new era of “working from home” has driven home buyers to opt for more land and spacious homes in the suburbs as well as communities further from the GTA. With interest rates hitting record lows, first-time or move-up buyers have been able to realize their dreams of more spacious accommodations. Condo dwellers worry about the possible disease spread in shared spaces and elevators and younger renters, perhaps feeling the economic impacts of this crisis, have opted to move back in with their parents. The appeal of the downtown core has greatly diminished with many restaurants, bars and entertainment venues being shut down. All of these factors have contributed to an “exodus” out of the downtown core.
For investors, this sudden shift in dynamic has been devastating to their bottom line. While it was unlikely they were making any real cash flow with their condo given the prices and maintenance fees, investors were happy watching their property values expercience amazing annual appreciation. But, now, with the shut-down of travel and consequently, Airbnb, many investors needed to pivot into the long-term rental market, driving up supply in an environment where demand was decreasing. This resulted in rental prices being driven down and longer periods of vacancy, turning their investment into a liability and forcing some to sell.
It’s been a bumpy ride for the downtown Condo market, no doubt, but will this continue on, or is it just a blip in the steep upward trajectory that we’ve been seeing?
First let’s consider COVID. Eventually, we will have a vaccine and we will start to return to a life that more closely resembles our pre-COVID days. Theatres, restaurants and bars will reopen to full capacity, some workplaces will expect employees to be back in the office and foreign students will come back to the classroom. The downtown lifestyle will, once again, become appealing. In fact, some experts predict that the condo market will explode with pent-up demand.
And, another huge factor is immigration. Immigration has effectively been on hold since COVID began but we just heard Trudeau announce the Federal Government’s intention to settle 1.2 M immigrants in the next three years. As we know, a good percentage of those immigrant will settle in the Greater Golden Horseshoe and specifically in Toronto. Many of these immigrants will be of “economic class” meaning they will greatly contribute to the economy and to the Real Estate Market, initially as renters and shortly thereafter, as buyers. This is all good news for the downtown Condo segment.
A Buying Opportunity?
Is this an opportunity? Probably. Who knows when we will see this combination of factors to suppress this market again. (Hopefully never!) As Condo supply continues to increase amidst decreased demand, prices in this expensive city will fall. It may be the perfect time to get into the market, either as your primary residence or as an investor. Do you need to be careful, yes, definitely. But with the guidance of an experienced Realtor, you can mitigate your risk. Give me a call and let’s chat.