How's the GTA Market

The final quarter of the year is upon us and we wanted to take the time to reflect on the Past, Present and Future of the Greater Toronto Area (GTA) real estate market over the course of the year. Shaun Hildebrand, President of Urbanation, just recently shared with us his analysis of the impact of COVID-19 on the housing market for which we will provide a summary for you below. Urbanation, is the authoritative source of information and statistics on the GTA real estate market.

PAST

In order to get a full understanding of where the market stands today, it's important we take a trip down memory lane and discuss how the GTA market faired before the recession. Prior to lockdown, the GTA was seeing 100,000 new immigrants come into the city Every Single Year! On top of that we had an additional 50,000 non-permanent residents and students move in.

This, coupled with interprovincial migration, the GTA was in need of 50,000 new housing units to reach completion annually. The 20 year average for Total Annual Housing Starts, however, was only at 38,000, slowly building up demand year-over-year-over-year. Underbuilding by 10,000 units a year has put significant upward pressure on pricing, reaching it's peak in early of 2020.

Once COVID-19 hit and we saw an immediate stop to immigration, that presented us with some unique challenges. New Housing Starts of Spring 2020 was on schedule to be one of our highest; short-term rental units were being flipped over to long-term rental unit due to new legislation which was meant to ease some of the demand for which now there was none, in effect causing the rental market to retract by 10% from the prior year.

PRESENT

The current statistics show just how remarkably resilient the GTA real estate market is.  Even with a  Second Wave, we have learned that the fundamental factors driving the market remain.

Although we did see a short uptick in mortgage payments being deferred, it was mostly done out of choice and not by necessity. Ontario now has the lowest mortgage arrears in the country with only 0.09%, or less than 1 out of every 1,000, mortgage holders are 3 or more months behind on their mortgage payments. Historically speaking, this type of deferral is not significant to cause any decline in housing prices.

Much of the softness in the Condo Market is happening in the Downtown Core with a growth rate of only 9.5% compared to that of last year; most of the momentum in the market is coming from the single-family home sector, prices in that category are up 20% on a year-over-year basis. Sales in this category comprise of more than 50% of all sales for a third straight month which is the first time we've seen this trend for over 20 years. Regardless that preferences for larger living spaces is trending, we have all of the confidence that workplaces will go back to normal and prices will dictate that people will once again flock toward condo buying.

FUTURE

All signals point to a full recovery in our economy by 2021/2022. This type of short-lived recession is consistent with what we saw in the early 80's and after the 2008 economic crisis, both of which had little impact on the overall real estate market here in the GTA.

The hardest hit group of people from an income perspective are those in low-income jobs as younger, hourly and part-time workers saw massive changes to their employment. Conversely, people in higher paying jobs have continued to survive, and in many cases thrive. The reason behind this is these individuals have become more conservative with their spending, by choice in order to save more to decrease future risk but also because restaurants were closed and vacations postponed. This sparked an increase in these individuals paying down their debt which is why we are seeing household debt service ratios declining while incomes haven't changed. 

With interest rates at all-time lows, these individuals are deploying their savings toward real estate as they are able to tolerate higher down payments, again increasing demand for housing in the GTA.

It is forecasted that immigration targets will increase and by 2022-2023, Toronto will see it's highest levels of immigration in over 10 years, again putting pressure on demand.

CONCLUSION

Although we may see people on the sidelines waiting to see how the second wave will unfold, this will only further build up demand for which will be neutralized once confident restores itself. Construction will continue to get delayed, furthering relatively low housing completions year-over-year and so it remains, that investing in the GTA, can be a great avenue toward building wealth.