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To mark the beginning of this new decade, we’re sharing 25 Real Estate Predictions and Trends for 2020 for Greater Toronto. Today, in the first of our 5-part series, we’re looking at the city of Toronto and what we think will happen with sales and prices in 2020.
Prediction: It’s Not Going to Get More Fun for Buyers
2020 Buyers will be in for more of the same as last year – rising prices, multiple offers on hot houses and in hot neighbourhoods, with some opportunities in up-and-coming areas further from the downtown core. CMHC predicts Toronto prices will increase 5% in 2020. Smart Buyers will be ready to move quickly with offers, as we predict homes will sell faster than they did in 2019, as we remain firmly in a seller’s market (meaning the sellers have control). Savvy Buyers will also be open to making compromises – whether that’s a two bedroom house instead of a 3 or living with one bathroom or no parking or on a busy street.
We expect the condo market to continue to be on fire. Condos are more affordable for first-time buyers, the maintenance-free living appeals to downsizers and condos are still a solid buy for investors.
Prediction: Sellers Will Have the Power (or most of it)
Much like in 2019, we predict Toronto Sellers will be more concerned about finding their next home then selling their current one and inventory will remain low. Many homeowners will struggle with the rising prices and the cost to upsize and will choose to stay put. (Related: I’m Trapped in My Million Dollar House) Smart Sellers will be ready to list their homes in non-prime months to take advantage of the pent-up Buyer demand, and while we’ll see hot spring and fall markets, I expect January, February and July will be more active than usual too. With rental rates continuing to rise and vacancy at an all-time low, condo investors won’t be exiting the market anytime soon, however, I expect we’ll see a small influx of formerly Airbnb condos come on the market as a result of the rule changes.
Related: Are You Ready to Sell Your Home?
Prediction: Toronto’s Rental Market Will Continue to Suck for Tenants
Unfortunately for Toronto renters, I predict another crazy year of demand outstripping supply: not enough inventory, bidding wars for prime rentals and rising prices. Forecasts predict another 7% increase in 2020 (ouch). Impacting the 2020 rental market in Toronto:
- The lack of new purpose-built rental apartments constructed in Toronto. Only 4,300 rental apartments were built last year, so tenants continue to have to rent condos directly from landlords, and there isn’t the supply to meet the demand.
- The end of rent control for units not previously occupied before November 15, 2018 (which will mean higher-than-average rent increases in those units)
- The continued influx of people moving to Toronto (which will get interesting as our tech sector for jobs heats up). RBC Economics predicts that the number of renter households will increase by 22,000 per year.
- The challenges of being a first-time buyer in Toronto: downpayment needs, stricter mortgage qualifying criteria and rising prices in the resale and preconstruction market mean people are remaining tenants longer.
- The new Airbnb rule changes, which will force some Airbnb operators out of business. But don’t get too excited – this will just be a drop in the bucket and isn’t likely to increase supply enough to affect rental rates.
Predictions: Mortgages, Interest Rates and Financing in 2020
We asked our go-to mortgage broker, Mortgage Jake, for his predictions about mortgages in 2020:
After a rocky few years in mortgage financing and the real estate market, 2019 arrived with a bang. “Everything old is new again”, they say, and the same was true for Toronto’s real estate and mortgage markets in 2019. Condos – hot. 905 – hot again. Detached downtown – hot. Semis – hot. Townhouses – hot. Rentals – hot. Rental market – white-hot. Rates – cooling off. Liquidity – back. Lenders – easing up. Did we catch lightning in a bottle? Will things continue? I don’t know….but I do have some opinions and a gut feeling about what I think might happen.
In no particular order, here we go.
- Interest Rates will never be predictable. Like a flag in the wind, the Bank of Canada changes its tune about where rates are headed. In 2018, we heard about the “neutral rate” so much that it was basically guaranteed that we’d see a ¾-1% increase. That didn’t happen. Nothing happened. Nothing except every almost major central bank in the world has lowered their interest rates, except Canada. That’s not a guarantee that rates will come down, either. We simply don’t know – so don’t base your real estate decisions on interest rates. Base them on: Can you afford this today? Do you qualify? And most important: can you afford this in 5 years?
- We might see changes to the stress-test to “make it more dynamic”. This is quite shocking, actually. When the 2019 Federal elections happened, this was never a mandate of the Liberal Government. Instead, they created this rather … how do I put this … useless First Time Shared Equity Grant Program that has not really had much impact in Toronto. (And why would it? Even with the doubling of the program, most people choose to keep the Government out of their equity. Smart!). NOW we are hearing that the stress test may be more dynamic (in other words, eased to help first-time home buyers). I have an idea – a simple one. How about a more dynamic stress test that requires applicants to qualify at a REAL +2% rather than the “whichever is higher” nonsense we have now? THAT would be awesome. I don’t expect awesome from the Liberals, but I’m surprised they are even thinking about this idea.
- Speaking of shared equity – two start-ups are coming out with a new shared equity model that supersedes the CMHC program. How? Instead of a max of 4x income like CMHC has, this program won’t have any stipulations other than “you qualify for the mortgage, we’ll help with the down payment”. Neighbourhood Capital and ARCH are the two (current) start-ups who I expect will be able to fill a small niche. What everyone wants to know is – which lenders will ever agree to this? I am waiting with anticipation and … well frankly… a bit of skepticism to how (or if!) this program will work.
- WYSINAWYG. Huh? What You See Is Not Always What You Get. This trend keeps appearing over and over again whereby I get a lot of phone calls from people stuck in bad mortgages. What’s a bad mortgage? A loan with bad terms. The fine print. I see people’s penalties being sky-high (and they didn’t know about it) or people who have a hard time moving their mortgage, or, people who want to renew elsewhere but are stuck with a HELOC (home equity line of credit) they never wanted/asked for in the first place. Be smart about your borrowing. Read the fine print and then read it again. Have it explained to you but never sign a document without knowing the three P’s of financing: Penalty, Portability, and Pre-payment.
- Credit Unions and Alt-lenders are doing amazingly well and will continue to do so. Don’t believe me? Check out Home Trust and Equitable Bank’s stock charts over the last three years. From doom to boom. And a company’s stock is usually indicative of how well the company is doing and how much demand it is satisfying in the marketplace. You can’t see how credit unions’ stock is doing because they are privately held, but we know they are filling the mortgage gap for those who don’t pass the stress-test.
Moving ahead to 2020, here are some things to keep in mind:
- The Government of Canada has increased the amount you are allowed to withdraw from your RRSP to $35,000.00 per first-time borrower. This just means that you’ll need to pay back more over 16 years, but it also means you can borrow more. The higher limit is a positive change because we haven’t seen the RRSP ceiling increase in a long time before this.
- Personal insolvencies are a huge alarming trend for the Bank of Canada. CIBC recently said that they believe the current insolvency rise is mainly due to the ¾% bump in the prime interest rate. The number of Canadians who are going through insolvency is the highest it has been in ten years. Indeed, the Bank of Canada sees this as one major reason to NOT increase rates and maybe decrease by ¼. (Keep in mind the BoC also has many reasons NOT to decrease the rate, so it’s a balancing act).
- Fixed mortgage rates are trending sideways. Want to know where interest rates are headed? Look at the Government of Canada’s 5-year Bond Yield and look at where its been. A one-year view shows interest rates going sideways – with some swings up and down. Where will rates go moving forward? It’s anybody’s guess. However, if the BoC drops it’s prime rate, I’d expect fixed rates to fall as well.
Getting a mortgage shouldn’t be easy, and 2020 will prove to be no exception. Technology might make things a little bit easier, but you’re still going to need to have all your finances sorted before making the biggest purchase of your life. So – get organized. File your taxes on time. Keep your income information handy. And make sure your credit remains great (or, let’s fix it before buying).
Tomorrow, we’ll be sharing our 2020 Real Estate Predictions for Mississauga.