The COVID-19 effect: State of the Toronto housing market

The COVID-19 effect: State of the Toronto housing market

The COVID-19 pandemic has thrown the world into a tailspin – and the real estate and financial markets have been significantly impacted by the crisis. So what does that mean for you? We talked to three experts to get their take on things. James Harrison, Mortgage Broker and President of, Alex Mackenzie, Consultant, IG Wealth Management, and Ryan Wykes, Senior Vice President of Sales at, share their answers to some of your most pressing questions.

The markets have taken a big hit over the last couple of weeks. How will that impact people's ability to buy real estate?

Alex: Folks who have lost some of their down payment savings will have to look at a less expensive property – or wait until the markets have rebounded and they've been able to rebuild their losses. As the markets keep falling, a lot of people have been asking me if they should pull their investments to salvage their savings. My answer to this is a very definite no. Pulling out your investments is just a guarantee that you'll lose money. I say that for a few reasons:

  1. This crisis is different from the one in 2008. A lot of people are looking back at the 2008 financial crisis and remembering how long it took to rebuild their savings. But there are some key differences between now and then: the biggest one is the reason for the downturn. The current crisis is coming from the bottom up: we're having problems because businesses have been forced to shut down and people are out of work. In 2008, on the other hand, the crisis happened from the top down: banks caused it, which led to job loss. This time around, most of the jobs haven’t gone away permanently – once the crisis is over, most people will probably go back to work. That’s a pretty key difference.

    And don't forget that even after that two-year downturn, the markets were back to their pre-crisis levels within a year of the market’s lowest point. So if you had just sat and done nothing, you would have been net neutral. But the problem is that people panic and sell – and they end up losing money. Or they stop investing, which is also a mistake.

  2. This is your chance to buy low. This kind of dip in the market is actually an opportunity, but a lot of people don't recognize that. In fact, this is the best time to invest – prices have dropped, so the market is actually “on sale.”

    We haven't seen a buying opportunity like this since the financial crisis. We’re down 30 or 35% from the peak and we're not done. So people with a decent time horizon of about two to three years can buy now at 30% off, and when people go back to work and the market rebounds, they’ll be in great shape. And the market is going to rebound. It may take a little time, but it will.

So how does this financial downturn impact buyers and sellers?

Alex: Sellers are in a great position at the moment – especially downsizers. If you cash out of a property and buy equities, you’ll be way ahead even if markets drop more than they have already.

For buyers, on the other hand, this can be more challenging. If you were going to put $100K down a couple of weeks ago, now you've only got $70K to work with. If that's enough to get you over the 5% mark, great. But the less you put down, the more debt you’ll be adding – and the more interest you will pay over time. On the other hand, if home prices jump the way some experts say they might after this crisis is over, you may end up having to pay more than you would now. Talk to your agent, financial advisor or mortgage broker to figure out your best plan of action.

How have mortgage lenders been impacted?

James: It's been incredibly busy, mostly with refinances and purchases that haven't closed yet. The Bank of Canada (BoC) dropped the overnight rate, which had an instant impact on the prime rate – but that was only beneficial to people who were already in a variable rate mortgage.

But with the stock market drop, the banks have lost the same 30% as all investors. There just isn't as much to borrow, so the cost of borrowing has gone up to help them recoup those losses – despite the lower BoC rate.

And now that they've been mandated to offer six-month mortgages deferrals to qualified borrowers (something that has never happened in the history of Canadian banking) their monthly cash flow will be significantly affected, and they need to increase how much money they're making by raising rates.

What can you tell us about the mortgage deferral program?

James: Thousands of people are asking about it and they’re overwhelming lenders with their inquiries. We heard from one lender that on Thursday and Friday last week, they got 60,000 emails about the deferral program.

The problem is, the banks have never done anything like this before: they're still figuring it out. They are all scrambling to roll it out and do it fast because the people who have lost their jobs may not be able to make their next mortgage payment. But the media is pumping out so much information about the program that everyone's calling in to ask questions, and it's completely clogging the system – and blocking the people who really need help.

Every lender is doing things a different way, too. Some are approving deferrals month to month, some for two months, some for six, others are asking for proof of job loss…everything is evolving on the fly.

When my clients call to ask me about the program, I tell them three things:

  1. If you still have a job, don't call the lenders just to ask questions. For the time being, leave the lines open for the people who have lost their jobs and really need to get through.

  2. Not everyone will qualify. This isn't a government-mandated “free holiday” from paying your mortgage. You'll have to fit very specific criteria to be eligible for the deferral.

  3. Don't defer your mortgage if you don't have to. While it might sound great to not have to pay your mortgage for six months, you won't be paying down principal, and your interest will keep compounding. You'll end up paying thousands more interest. Deferral is a great option if you don't have another choice, but if you can cover your mortgage, don’t defer.

If I'm in the market to buy right now, what should I be doing?

Ryan: Use this time to prepare. Get your credit checked. Get pre-approved to figure out what you can realistically afford. Do your research and sit down with a Condo Pro to get educated. With greater knowledge and a good team, you'll have a better chance of getting in at the right time.

And it’s okay to wait a bit, but if the perfect property is on the market right now, go for it. It’s pretty much impossible to time the sweet spot. We are already seeing less competition out there, and prices aren’t going quite so crazy. But low inventory and high demand – the two main issues driving the market before the crisis – won't have gone away when the crisis is over. Prices are likely to hit (and potentially exceed) pre-crisis levels pretty fast.

However, if the situation lasts longer than anticipated, additional inventory may come onto the market as unemployment forces sales. But we hope it doesn't come to that – as we all stay home to flatten the curve, let's try to stay optimistic and hope things rebound fast!

Want to talk to a condo pro to see what your best options are? Get in touch.

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