Thanks to COVID-19, we’ve hit the pause button on the real estate market in a pretty big way. It hasn't stopped completely – folks who have sold recently may still have to buy something new, and those who bought in early March may still need to unload their original properties. But in general, everything is down. We’ve seen a 27% increase in cancelled listings and 33% fewer new listings (20% less for freehold, 41% less for condos).
The number of sales has fallen right off – compared to last week, they’re down by 50%, and compared to the week of March 9, they’ve dropped by 62%. Demand has dried up. Open houses have been cancelled and viewings are declining more with each passing week. The only people buying or selling right now are those who have to.
“I’ve definitely seen some panic sales already,” says Ryan Wykes, SVP of Sales, condos.ca. “As people push to get transactions done under pressure, it’s putting sellers at a disadvantage and driving down prices.”
Are we entering a buyers’ market?
One good indicator of market health is the “sales to new listing” ratio (number of sales divided by number of new listings). Anything above 60% is a sellers’ market (high demand, lots of competition), and below 40% is a buyers’ market (low demand, low competition). We've just seen that ratio drop from a very healthy 61% three weeks ago to 35% last week, moving us almost instantly from a seller's market to one that favours buyers. And that lines up with the drop we’ve seen in prices – average selling price this past week went down by about 8.5%.
So yes, we have entered a buyers’ market…but only in certain segments. Condos under $650K and freehold homes under $1.2M remain hot. In fact, a condo at 85 Bloor St E. had 11 offers and sold for $111K over asking earlier this week.
Properties are still selling over asking – likely due to pent-up demand from the overheated market, but average sale vs. list price has fallen from 105% to 102.5%. There are still some listings available, just not nearly as many buyers. And homes are still selling, but the competition we saw just a few weeks ago has disappeared. Where we might have seen 8 or 10 or even 20 offers on a property at the beginning of March, now you're more likely to see one or two.
Taking a closer look at the condo market
Condos are performing a bit better than the freehold market right now: average price per square foot has dropped by 5%, while freehold properties have dropped by 10%. The “sales to new listing” ratio for condos hasn't fallen as far as it has with freeholds. We're still in buyer's market territory, but there's more action with condos for sure. That difference could be due to a number of factors:
Savings have taken a hit: Down payment size has fallen as people's savings have been impacted by the downturn in the stock market.
Mortgage rates are rising: The banks aren't being as free with money these days. Rates have gone up despite the low Bank of Canada overnight rate, and that’s further limiting what people can afford.
Affordability: Condos are generally less expensive than freehold properties, and as people are able to afford less, condos end up being the default. Buyers who might have been in the market for a house a little while ago may now have to look at condos.
Market outlook for condo sales: week of March 23, 2020
Market outlook for condo rentals: week of March 23, 2020
Rental prices are getting more affordable.
This trend may have something to do with Airbnb investors listing properties out of panic. Listings for “furnished condos” are popping up all over the place, saturating the market with supply and driving down price. And while MLS/TREB stats are showing a conservative drop of only about 2%, that doesn’t factor in the “informal” market, where prices are substantially lower. A lot of Airbnbs are being listed on Kijiji and Craigslist, often at prices lower than what’s on MLS.
Robert Hogue, Senior Economist at RBC, has said he expects sales to fall by 2.9% over this time last year. According to him, if you’re selling your home, now isn't the time to be getting full value. However, he does have a somewhat more positive long-term outlook: he says low interest rates and government incentives will buffer the decline, and that once COVID-19 is over, we will rebound quickly.
“Exceptionally low interest rates, strengthening job markets and bounce-back in migration will generate substantial tailwind,” he says. “We project home resales to surge more than 40% to 491,000 units in 2021.”
Want to know more about COVID-19 and the Toronto real estate market? Talk to a Condo Pro to figure out the right time for you to buy or sell.