Toronto Market Report | The impact of Covid-19
So how bad were sales on the Toronto Real Estate Board in April? 2975 units represents a sales drop of 67% from April of last year. In fact, no month in 2008, the year of the financial crash, was this low. The seasonality of real estate sales means that April sales are always larger than March. Instead, this year’s sales dropped by 63% from March to April. Our biggest sales months of the year are May and June and we look for numbers in the 10,000 range. This year we will record less than 5,000.
To understand the impact of Covid-19 on real estate, you need to look past the ‘stay-at-home’ enforcement in April and May. The Real Estate Industry has been creative with ‘virtual’ everything from Open Houses, to Showings and even Offers! Protecting buyers, sellers, and agents has been successful.
Our market has been driven by demand and supply for a number of years. The demand side has been fuelled by an influx of people to the GTA – averaging 100,000 per year. Developers have capitalized on this with increased construction (particularly condos) and owners have enjoyed rising prices because new supply never kept up with new buyers. But the aftereffects of Covid -19; mainly reduced migration caused by more expensive and difficult travel, and closed borders between provinces and other countries will severally reduce buyers. Expect our markets to start to favour buyers. Sellers will initially resist this change, so expect prices to remain fixed in the short term but to begin dropping by 5-10% into 2021.
In terms of sales in 2020, we had forecasted in January over 90,000 and the economics were tracking for that. Today we are revising our call to 70,000 annual sales. This would be the lowest annual number since 2001.
So, with sales down, why are prices not heading down too? The answer is that listings – both ‘new’ for April are down 64% from April of last year and ‘active’ listings – what buyers have to choose from are down by 41%. Sellers are either not interested in entering this market and for sure they are not interested in lowering their prices.
Monthly Sales Jan-April, 2017-2020
This chart plots January-April MLS® Sales for the current year and the previous three years. We can see that April 2020 sales was the lowest. Source: Toronto Real Estate Board
Monthly Sales Trend Line 1994-2020
This graph shows the trendline each year starting from 1994. The blue line indicates the acutal sales. The red line is the sales trend computed using a 12-month moving average. Source: Toronto Real Estate board
New Listings April, 2017-2020
This graph compares the new listings in April this year with the past 3 years. We can see there is a drastic decrease of 64% compared to last year. Source: Toronto Real Estate Board
Condos for rent will be the hardest hit segment of the Real Estate market. First, 100,000+ non-resident students enroll in post secondary institutions in the GTA each year. Our guess is that most are in their own country and won’t return in 2020. Corporate transfers for a one or two-year term will also be non-existent in Toronto. Then we have Airbnb units which will be transitioning into the traditional rental pool.
Already we are seeing a drop off in units leased downtown. Normally, April would show over 1,000 leases and we had just over 600. That’s a drop of 40%.
But the real story is the immediate impact on rental rates. Studios dropped by $100 per month to $1660. The biggest market segment is one-bedroom units with no parking. The rent there is $2100. The top end of the one-bedroom market includes a den and parking, and that is renting for $2400 which is $150 lower than the previous month. The two-bedroom market also experienced rental declines of up to $200 a month. The entry point without parking was $2600 and the top end is just over $3,000. There are few three – bedroom units being leased and here rents are $300-400 per month lower.
My advice in this market is directed to both Tenants and Landlords. For Tenants, don’t stop paying rent. All you will receive is a rent deferral, and when the pandemic is over, all rents will come due and you will be evicted if you don’t pay up. So talk to your Landlord about a deal.
Landlords, get your unit rented at any price. Rents will continue to fall into next year. If you cannot feed/support negative cash flow, then better to sell into this market than to wait when more new projects come on stream.