You’re not alone if you need a minute to catch your breath – 2020 has been a whirlwind. In the Toronto real estate market, we’ve gone from an early spring market bustling with bidding wars in February to a near-stall through the worst weeks of the pandemic straight back to a mad-rush of activity as the economy began to unpause at the end of May.
Here’s what you need to know:
It’s Harder to Get Mortgage Financing
On June 8th, Canada Mortgage & Housing Corporation (CMHC) announced changes to mortgage qualification criteria for Buyers with less than a 20% downpayment, effective July 1:
- Beacon Scores (credit scores) requirements were increased from 600 to 680;
- The ratio of income to debt used to qualify how much mortgage a borrower can get was decreased from 4.8 to 4.2 – meaning that $100,000 income earner who could borrow $480K before the change, now qualifies for $420K.
Note that agreements of Purchase and Sale executed by July 1st with closings after the changes take effect will still qualify under the old rules.
This is bad news for first-time Buyers in the GTA, who already struggle to afford their first home. Our Mortgage Broker Jake has the following suggestions:
- Look for properties with a secondary rental unit – the lenders will add 50% of that income generated to help you qualify for a higher mortgage.
- Get help from the Bank of Mom & Dad (or other friends/relatives with more money than you). There are 3 ways they can help:
- You can borrow against their home equity line of credit (HELOC) to help you reach the amount of funds you need for the purchase or to increase your downpayment to 20% so you won’t be subject to the new qualifying ratios; or
- Have them co-invest with you by lending you the $$ and when you sell, offer them the % return on their investment; or
- Get them to co-sign the mortgage – adding their incomes to the application will help you qualify for more money.
It should also be noted that there are 3 mortgage insurers in Canada – Genworth and Canada Guaranty have publicly stated that they will not be following CMHC’s lead (at least for now).
These aren’t the only changes we’re seeing – some lenders are getting more strict in general and self-employed Buyers are finding it harder to get a mortgage too.
The Buyers Are Back – But Where Are the Sellers?
While May 2020 sales were brutal (down 53% from the year before), we did see 55.2% more sales in May than in April, as the market picked up speed.
In real estate, we use a statistic called ‘months of inventory’ to help gauge what’s happening – it measures how long it would take to sell all the homes currently listed for sale at the current rate of sales. When ‘months of inventory’ is below 4 months, many experts consider that to be a sign of Seller’s Market (where the Sellers are in control and prices are increasing); 4-6 months of inventory indicates a Balanced Market; and if there are more than 6 months of inventory, it’s considered a Buyer’s market, where the Buyers are in control and prices are decreasing. Here’s where things stand as of May 2020:
Months of Inventory:
|May 2019||May 2020|
At the BREL team, we use the traffic on our website and the kinds of calls we get to predict where things are headed. Fact: our website traffic is at an all-time high right now and we’re hearing from disproportionately more Buyers than Sellers.
In a normal spring market, we see Buyers ready to buy before Sellers are ready to sell and I suspect the same wait-and-see phenomenon is happening right now. If you’re thinking of selling and are worried there’s not enough demand out there, talk to your REALTOR – the interest and price you can fetch for your house or condo might surprise you. (shameless plug: call us to discuss!)
Sellers take note: the Buyers are ready, there’s pent-up demand and they are motivated to make a move.
What’s Hot, What’s Not
The GTA real estate market isn’t homogenous, and different sectors of the market behave differently.
Condos vs Houses
In the first 2 weeks of June, most houses in central Toronto sold in 6 days and on average, sold for 108% of the asking price. Translation: bidding wars! One (very underpriced) house downtown, listed at $799,000 sold for $425,000 more than the asking price.
Central TO condos sold on average in 17 days, for 101% of the asking price. Lower priced condos were more likely to get multiple offers.
First Time Buyers vs. Upgraders vs. Luxury
First Timers: Homes targeted to first-time buyers are a HOT commodity right now, likely due to the upcoming mortgage qualification changes that will lower budgets. In Toronto, we consider starter condos as those priced under $500,000 and starter houses priced under $1,000,000 (I know, that sounds crazy even as I type it).
In the first 2 weeks of June:
- More than 50% of condos priced under $500,000 sold at or above the asking price across Toronto
- 80% of houses priced under $1,000,000 sold above asking in central Toronto
Upgraders: People looking to upgrade or move to a bigger home have continued to struggle with whether to buy or sell first, given the uncertainty in the virus and the market. Will prices go up or down? Will there be a second peak or wave of the virus and a second lockdown? How will the overall economy and immigration affect real estate? It’s almost impossible to predict anything these days.
Read a longer discussion here: Should You Buy or Sell First?
Luxury real estate: Sales in the $2 million+ market have started their comeback as well: While May was rocky (81 sales vs 200 last year), the first 2 weeks of June saw 52 $2 million+ houses sold vs 78 last year.
Trouble is Brewing in The Rental Market
After years of (unsustainable) rental rates increases, Toronto’s rental market was one of the first to fall to COVID-19. In May 2020, the Toronto Regional Real Estate Board (TRREB) recorded 30% fewer rental transactions and decreases in prices of 5.1%. It’s a good old-fashioned story of too much supply and not enough demand:
During the pandemic, there was less demand for rentals:
- Job losses, both temporary and permanent, caused existing tenants to stay put vs. try to land a new apartment without proof of income/employment
- Tenants delayed moving/upgrading their space due to logistical challenges during the lockdown
- New immigration was paused (and form an important part of our rental market)
- International students and closed borders saw students flee home when the coronavirus hit and it’s uncertain whether they’ll be able to return in September
And there was more supply:
- Furnished condos that were previously listed as Airbnb’s flooded the market in response to a halt in the short-term rental market
- Laws restricting a Landlord’s ability to show a home for sale during the pandemic resulted in some landlord’s listing their properties for rent instead of for sale
As REALTORs re-invented their businesses to reduce physical contact with people and cope with showing restrictions, fewer agents are working with tenants right now, which is likely also a contributing factor.
Lower Demand + More Supply = Decreasing Rental Prices
The Buying/Selling Process Has Changed
ronavirus blogs as things change, but in short:
- Virtual open houses
- Virtual showings and more up-front property due diligence
- Private in-person showings with your REALTOR, with masks and physical distancing
- Professional staging, cleaning and disinfecting
- Sellers vacating their properties during the sale (if they can)
- Electronic offers and digital document signing
- Virtual closings with lawyers
What’s Still Out:
- Riding in the same car as your REALTOR
- Public open houses
- Seeing dozens of properties for sale that don’t fit your criteria
- Forcing tenants to allow showings during a sale
- Some condo buildings are off-limits, as they aren’t letting non-residents enter
- Evicting a tenant
What’s next? We’re watching what’s happening, looking for trends and helping our Buyers and Sellers make smart decisions for the long-term. We’ve learned not to try to predict 2020…