Over the last 6 weeks, there have been some dire projections that the Toronto and the national real estate market could sink 9 to 18 per cent.
A lot of analysts were surprised that the CMHC took such a strong stance, peddling fear, and hope for those still on the sidelines. The reality is that the real estate market is more nuanced and now they are backing off those numbers and the fear mongering.
In Toronto, the CMHC now predicts average home prices could decline by between three and ten per cent by 2021, with the softening disproportionately affecting condominiums.
They also cautioned that “any predictions the agency makes over the next few months will be subject to a high degree of volatility because of coronavirus-related uncertainty.” No kidding.
“Strong pre-construction sales across the Toronto central metropolis area owing to a more robust and diverse economy will ensure that Toronto’s recovery will be slightly stronger than the rest of Ontario in 2021 and 2022.”
The CMHC provides mortgage insurance to Canadians who put less than 20% on a home purchase under one million dollars. And they just changed the rules:
- Lowering debt service ratios to 35% (from 39%) and 42% (from 44%)
- Establishing a minimum credit score of 680
- Not allowing borrowing for the down-payment
Since these rule changes will disproportionately affect condo purchases in the Toronto market it also becomes a bit of a self-fulfilling prophecy?
It’s interesting to note that the other major mortgage insurers have not made similar moves.
TRREB just released the numbers and the market is back:
- Sales are down only 1.4% year over year and up 89% compared to May
- New listings are up 2.1% but Active Listings were down 28.8%
- Price is up 11.9% and the HPI is up 8.2%
- In the City of Toronto detached prices were up 14.3%, semi-detached up 22% while condos were up only 5.6%
“This, coupled with the fact that average selling price growth outstripped growth in the MLS® HPI benchmarks, points to a resurgence in the higher-end market segments.”
We are starting to see some softness in condo prices and showings with some of our recent condo sales and in the TRREB numbers.
In the economy:
- Immigration is forecast to be 65,710 in 2020 down from 115,000+
- Unemployment is up to 13.7% May 2020
- Inflation is deflation at -0.4% May 2020
- There are 750,000+ mortgage deferrals
- There are predictions that Canadians living in Hong Kong may move back
- Cottage sales surge by as much as 25% as Torontonians “flee the city”
- Hamilton has become a strong sellers’ market – condo owners that can work from home are retreating
The fundamentals of the housing market are the same as they were before the pandemic: a huge demand and a short supply. This has not changed, and until it does, you can expect real estate prices in Toronto will not crash.
So what should you do? You will have to decide, but do something, doing nothing and waiting on the sidelines could cost you hundreds of thousands of dollars.
- If you think you might have to default on your mortgage, sell now don’t wait
- If you are thinking of buying, buy now at a price you can afford. Interest rates are great and the market will be strong and stable in 3-5 years when you may want to sell.
- If you are looking for a condo, we expect more softness in that market as more supply comes online and landlords are listing vacant condos.