Should you keep waiting to buy that new condo?
It’s July 2020, the world is still reeling from the health and economic impacts of COVID-19, and you’re spending a lot more time at home. You may find yourself more annoyed with the things your place doesn’t have, but is this really a good time to buy a new home?
The conditions in the resale market often precede movements in the new home segment, so let’s start there. The resale market in the Greater Toronto Area (GTA) has started to pick up, and the anecdotal commentary from realtors is that demand has clearly returned. However, supply is begining to increase, too, and it looks like listings are coming.
Evan Siddal, CEO of Canada Mortgage and Housing Corp. (CMHC), warned anyone who will listen that we shouldn’t be reading too much into the pricing during a low volume, low supply market. Pricing is always sticky in the short term as sellers cling to pre-pandemic prices, and are often reluctant to accept the new market reality.
CMHC recently forecast a decline in resale house prices in Canada of between nine and 18 per cent over an 18-month period, with a more muted drop in the GTA. Principal Market Analyst Dana Senagama says CMHC’s forecast for the Toronto Census Metropolitan Area calls for an increase of one to six per cent in the resale market in 2020, but there could be a drop of as much as 12 per cent next year. They didn’t factor in the recent mortgage insurance rules changes, either.
We will likely begin to see more listings in the resale market as government financial assistance programs expire, and lenders’ mortgage deferral periods run out. This could impact the resale condominium market more severely, as the decline in tourism and out-of-town contract work has resulted in many owners of short-term rentals listing them for sale and rent. This has had a negative impact on rental rates, especially in downtown Toronto.
Considering all that, how much stock do you put in the resale housing market, when you’re looking at purchasing a new condominium which may not be ready to occupy until 2025 or 2026? If you’re buying for an investment, are these pandemicimpacted figures you’re seeing an indication of what is to come? Or a temporary blip?
If you’re an investor, the recent data looks grim. The latest findings from rentals.ca and Bullpen Consulting show that rent declines for leased condos have been the deepest for twobedroom and larger suites. In addition, three brokers told a recent webinar hosted by In2ition Realty that two-bedroom demand was non-existent. Expensive units and a decline in desire to take on roommates at this time is killing that market. Working from home with a roommate isn’t popular. But, a vaccine could be approved next year and everything could go back to normal.
This may seem like semantics, but the condo rental market is not oversupplied right now – it is suffering from under demand. People are afraid to move, others who want to come from other countries for work and school cannot, and even recent graduates are starting jobs by working at home at their parent’s residence. There is a freeze on movement – retirees not moving down, new households not forming and delinquent tenants not evicted. We are not in a normal market, not even close.
If you put my feet to the fire, I’ll say the GTA new home market begins to recover in the second half of 2020. There have already been a couple successful new condo projects launched in the past three months.
These new-home buyers are clearly focusing on the long term. Toronto is a dynamic city and people will come here, businesses will come here. Turmoil south of the border regarding the virus and the divisive political climate will only help us when we open the borders again.
If you’re buying with a five- to 10-year hold anticipated, rates are good, and developers are offering some intriguing incentives. My advice is to surround yourself with a knowledgeable team, beginning with a realtor and a mortgage broker, buy what you can afford, and buy for the long term. Good luck.
Ben Myers is President of Bullpen Consulting, a boutique residential real estate advisory firm specializing in condominium and rental apartment market studies, forecasts and valuations for developers, lenders and land owners. bullpenconsulting.ca Twitter@benmyers29