I have been dragging my feet on this article but I was waiting for the numbers to come out for year end from TREB because it makes my life 1000x easier to give you the info you need.
2019 was an interesting year. It took a little to get going then started pretty strong come mid February. Prices continued to grow over a few months, then it slowed back down for a bit and ended the year with one of the hottest December markets I have ever seen, which has continued right into January.
Usually this time of year things slow down quite a bit, the remaining inventory (AKA all the ugly houses and condos on the market which have sat for months) gets snatched up after they finally start to do some price reductions and also because nothing new is really hitting the market. Much like Mother Nature does every year, the Toronto Real Estate market goes through this process so she can start the year anew. But that hasn’t really happened.
Before we go there, let me go over what we saw happen last year to give you an idea of how the year ended to get a better sense of where we are going (special shoutout to Jason from Outline Financial for the awesome slide deck):
As you can see from the charts above, other than the condo market which saw a 6.8% year of year change, the rest of the market remained relatively quiet. Detached houses only saw growth of 0.4%, semi-detached were up 4.3% and townhomes grew by 3.6%. A lot of what has driven this current market has just come down to affordability. The mortgage stress tests introduced a few years ago have taken a little longer for the market to adapt at the higher price points, and on top of that there may be some serious concern that the government may get involved again. At the end of 2016 the average condo in the 416 would cost you around $460,000 while a detached house was over 3 times as much at approximately $1.3M. But that gap has shrunk significantly and as it stood at the end of the year, the average detached house was just over 2 times as much as the average house which is still only at $1.36M. Overall the freehold (detached, semi-detached and townhomes) housing market has remained relatively flat the last few years with the condo market showing significant growth each year. If this sounds familiar, this is essentially what the condo market did in the city from 2011-2015 but as these gaps between product types shrink eventually buyers are going to need to wake up and realize it makes sense to make a move up to the next property type. When the gap between the average condo and average townhouse (which tend to be quite larger than condos) is sitting at only $60,000 it just makes sense to go bigger if you are a younger buyer in the market.
The freehold market is due to see some big jumps this year, but the costs to play in this market are quite high so the majority of people who will be entering this segment are ones who’s condos have nearly doubled in value the last 5 years. But don’t worry about the condo market just yet, it will be just fine too thanks to a few factors. It is now one of the only markets that first time buyers can enter. Combine that with a lot of baby boomers hitting retirement age looking to downsize if the houses do start to move, expect some of these people to cash out and switch into the condos. Next, if you look at the growth curve for the condo market, it has remained relatively stable. While prices have risen quite significantly there have not been any dramatic spikes like the detached and semi-detached housing markets saw back in 2017. There was a spike back then also, but the market came down and quickly recovered the following year. Finally, as has always been the biggest driver in the market we still have strong immigration numbers which show no signs of slowing down.
Where we sit today though is best depicted by the final slide showing Month’s of Inventory which has been on the decline since the middle of last year. This stat tracks how long it would take to sell every property on the market if no new properties came to market. To put this in perspective a balanced market is between 3-4 months. For all the different property types we are sitting between 1.03-2.4. As supply drops and demand stays the same prices will go up as we have already seen in the first few weeks of 2020. I have already seen several properties that have sold with over 20 offers, very reminiscent of the 2016 run-up in the market. Expect this trend to continue unless a lot of inventory suddenly hits the market. It is possible to think this may come from some of the 2019 pre-construction completions where owners may be looking to cash out, but I wouldn’t bet on that happening and that low inventory will be one of the recurring stories of 2020.
But it hasn’t been all roses and there are some potential threads to the market. The government has a habit of stepping in if the markets grow too much. Though they tend to wait until the markets are already correcting themselves before doing so causing things to fall off a cliff real fast. The year has gotten off to a shaky start also with a near World War 3 scare and the current Coronavirus rapidly spreading across the globe. Financial experts also say we have had it very good for a long time and keep predicting economic slowdowns, but timing these is near impossible.
Putting It All Together
Markets always have risks and if you turn on the news these days it looks pretty damn scary, but as the rest of the world gets scarier and scarier suddenly Canada looks like an even better landing place for anyone looking to start a new life. Combine this with Canada needing more people and the majority of these people landing in big cities, I still feel confident that prices will end higher by year end. If you are buying real estate with a 1 year outlook I think you are looking at it the wrong way to begin with. I would not start a house flipping business in the current market as I feel there is a little more than normal short term risk. But if I owned a condo downtown this might be the year I make the jump to a bigger property before the gap in the market widens further again. My conservative predictions are the condo market will end up year end around 11% higher, detached and semi-detached will grow by 12% and townhomes will see a healthy spike between 11-12%.
If you would like to discuss your own situation and view what options are available to your unique situation just send me a message to schedule a meeting.
Disclaimer: This article contains my personal opinions and should not be used as financial advice. I recommend reading several qualified sources and formulating your own opinions of where you see the market going before making any investment decisions.