2020 should be business as usual for the Toronto condo market, unless something drastic changes.
Wow, it's 2020 already! Did you actually do anything for New Year's Eve, or were you like me and purposely made zero plans so you could sit on the couch, eat takeout, watch Netflix and tune into NBC at 11:50pm to watch the ball drop in Times Square, then head to bed? Yeah, I like to live dangerously.
For Toronto real estate, 2019 ended with a bang. Activity kept steady right up until Christmas and finally died down over the Christmas and New Year's break, as expected. Thankfully, because what a hectic year 2019 was! Condo prices in the GTA were up around 10% for the year - in fact, all housing types (detached, semis, townhouses, condos) were all up for the year. Now that we're sliding into 2020, everyone seems to ask me the same question already - "What's this year going to be like?"
Now you know I'm not one to make market predictions (check out Why I Don't Make Housing Market Predictions), but there have been three specific things on my mind lately that to me could have the biggest impact on real estate prices in Toronto for 2020. And while these will have an impact on all housing types, I feel like more focus is being placed on the condo market lately given the incredible gains we've seen over the past few years. And since condos are the first-step into the TO market for most folks and where first-time buyers typically set their sights, condo prices will likely be the focus again in 2020.
So here we go - Here's what I think could have the biggest impact on condo prices in 2020 (in reverse order of importance):
3 - Interest Rates - Talk to anyone in any part of the world and ask them what they think has the biggest impact on real estate prices and the answer is almost always "interest rates". Without banks and the ability to borrow money, real estate as we know it wouldn't exist. And when money is cheap, people borrow. The more money available to borrow, the more expensive real estate gets. There's obviously more at play than just interest rates to determine housing prices but it's probably the most direct culprit. Interest rates in Canada are super, super low. And if the Bank of Canada has its way, they will likely stay low all through 2020 (at least that's the message they're sending). Which means borrowing money will remain cheap in 2020 and that money should continue to flow into real estate.
2 - The Stress Test - When the B-20 Stress Test was put in place in Jan 2018, my gut reaction was "this is stupid. I don't need the government to watch over me to tell me how much money I should be able to borrow." But the more I thought about it, the more I realized its benefits. A bank's job is to lend, and when their profits are tied to how much they can lend, someone needs to keep them in check to make sure they don't get greedy and push people into financial situations that could ultimately affect the overall banking system and the economy. The lack of government oversight is exactly what led to the financial meltdown in the US a decade ago and I'm all for regulation that would prevent something like that from happening again. But the Stress Test did have some major unintended consequences -
a) the low-end of the market, ie - condos, skyrocketed in price as people were pushed down the price ladder, and for many it meant condos were the only way into the Toronto market.
b) many first-time buyers were completely priced out of the market altogether in terms of actually qualifying for a mortgage, and
c) people actually ended up being trapped in their mortgage with their current bank at renewal.
I think it's safe to say that the introduction of the Stress Test helped push condo prices to levels we've never seen before, and probably quicker than anyone imagined. But will the Stress Test be eliminated altogether? I highly doubt it. Point C above is where I think things could change. The Liberals have announced they will be "revisiting" the Stress Test soon and at the risk of making a prediction, I suspect they will remove the need for the Stress Test when a home owner attempts to switch lenders at the end of their mortgage term. The idea that your current bank doesn't need to run the Stress Test on you when you renew your mortgage but a new bank does if you want to switch lenders never made sense. It's anti-competitive and in many situations, people wouldn't even qualify for their own existing mortgage if the Stress Test was applied on them now, which keeps them from being able to switch banks. That definitely needs to change and that could be a quick-win for the Liberals. But any other major structural change to the Stress Test in terms of a buyer's ability to borrow money will absolutely have an impact on condo prices, and real estate prices as a whole. We'll just have to see what, if anything, actually changes.
1 - Supply - You see all those cranes in the TO skyline? And all those development proposal signs all over the city? Believe it or not, it's still not enough to satisfy the demand for housing in the core. And while developers are trying desperately to add more supply through new condo projects (albeit for their own profit), this will take years. All the while the supply of resale units in 2019 wasn't even close to satisfying demand. You would think that with all these towers already completed that supply on the resale market would far outstrip demand, but the demand never let up and probably isn't going anywhere anytime soon. So the only thing that can possibly bring prices to a point of equilibrium is an increase in supply from current condo owners. This is the wildcard at any given moment in any market - will sellers outnumber buyers, and if so, will that be enough to stall prices? Resale supply will be without a doubt the strongest force that will determine how condo prices play out. And there's no way to predict if we'll see any meaningful change in 2020.
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Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)