Toronto real estate trends: 7 reasons why market will stay strong

January 28, 2021

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TORONTO: When the COVID-19 pandemic put a damper on Toronto real estate sales beginning in March-April of last year, several analysts forecast as to where prices were headed in 2020. Some predicted a modest 5 percent increase all the way down to the now infamous forecast by the Canada Mortgage and Housing Corporation (CMHC) to -18 percent.

The CMHC forecast prompted certain real estate brokerages at that time to claim that CMHC was “no longer relevant” and given to “fear mongering”.

As it turns out, sales were indeed badly hit plunging by double digits but the prices barely budged.

As the year progressed, Toronto real estate trends turned positive as sales picked up smartly, ending 2020 with an increase of 8.4 percent over 2019 and prices up by 13.5 percent over last year.

Many economists and bank officers have put forth their projections for 2021 with varying forecasts. Though mavens from different institutions may differ in their analyses, in a rare case it was recently reported that a senior economist from RBC, Robert Hogue, says there will be price gains on the national level whereas the chief risk officer from the same institution saw a decline in prices and remaining depressed till late 2023.

I am not a graduate of soothsayer school, nor do I know if there is such a school, but as a long time mortgage broker in the Greater Toronto area, I feel there are seven reasons why the Toronto real estate trends will stay very positive and not crash.

The Toronto real estate market will remain strong because the MOI (months of inventory) from the beginning of 2019 where it was over 3 months, has now slid to less than a month. Since fewer homes are available for sale, a high percentage is being sold over the asking price. This trend will continue in 2021 according to many experts.
As noted by Benjamin Tal, a high ranking economist of CIBC, most of the jobs lost during the pandemic were low end jobs while the higher paying jobs remained intact. When the first lockdown occurred, people were scared to go about house hunting but now they are more emboldened, due to the déjà vu effect, and these high earners will keep the prices afloat.
Another important factor is the low mortgage rates. The Governor of the Bank of Canada just recently indicated that he will keep the interest rates low into 2023 and will continue the Quantitative Easing program (currently at $4 billion a week) alive till then. This will keep mortgage rates low for some time.
Several vaccines have been developed to combat Covid-19 and as more and more of the population get vaccinated and things get back to normal with unemployment numbers decreasing, there will be more people looking to buy homes thus driving up demand while inventory remains tight.
Immigration that has taken a hit will normalize once all the vaccinations are in place and travel is back in style, thus bringing in more prospective buyers.
Even though we may think that a 13.5 percent year on year increase in home prices in Toronto is quite substantial, we should remind ourselves that since 2017 when the average home price in Toronto was $822510, the average increase per year until now at $929,699 is only 4.15 percent. If we go back 10 years to 2010 (Toronto average home price at $431,262) the increase is 7.98 percent per annum and going back 25 years, the regular amortization period (when the average house price in Toronto was a mere $203028), we get 6.27 percent. These increases, for the periods of time indicated, are no reason for concern for a major metropolis. (Average home values taken from TREBB’s historical prices).
In essence, an abrupt stop in economic activity due to a shock to the system that’s unrelated to economics at its core (i.e. a pandemic) will not affect the sanguinity of our economy as much as an underlying fragility in the financial system resulting in a long-standing downturn in financial health that would most likely have brought down the real estate market.

There are several more reasons, but we shall leave it at that.

In summary, I think the real estate market will keep marching on. As it is, the latest reports for January are very robust with even bully bidders at war.