COVID-19 is affecting everything from local schools to the global economy. So it's not a stretch to assume it will hit the (currently hot) Toronto market with a cooling blast. And the virus isn't the only factor at play here. The Bank of Canada dropped interest rates for the second time this month, taking it down to 0.75% from 1.25% just two weeks after dropping it from 1.75%, causing speculation that it could fuel the real estate market despite the outbreak. However, we are entering a liquidity crisis and mortgage rates are actually not going to fall. In fact, fixed rates have actually gone up: no lender has dropped their rates in line with the interest rate cut. Changes to the mortgage stress test have also been suspended, which means borrowers won't be able to qualify for larger loans than before.
Some other big news: homeowners who have insured mortgages are going to be able to defer mortgage payments for up to six months. That’s big news for people whose incomes have been impacted by the virus.
Confidence has turned to caution in the real estate market, as coronavirus cases are increasing across the country and the world, business is slowing down and both the stock market and our economy are taking a hit. So all in all, it's probably too early to predict how the virus will impact the market. If we end up under the same kind of lockdown as Italy, sales will come to a halt. But how that will impact prices and available inventory remains to be seen.
Toronto has a history of bouncing back
However, in the longer term, there's nothing to indicate the market won't recover quickly. Once the COVID-19 crisis is over, the factors that have been driving the GTA market will still be there: low inventory and an ever-growing population of people who all need a place to live. Google is building a 500,000 square foot headquarters here, and our city has become a tech and innovation hub and a booming film town. Immigration shows no signs of slowing down, with a huge percentage of new Canadians settling in the GTA.
In our opinion, whatever impact COVID-19 has on the market will be short-lived. There's historic evidence to back that up: let's take a look at how the Toronto real estate market has reacted to past crises:
SARS 2003
When Toronto faced SARS almost 20 years ago, the housing market wasn't impacted: both year-over-year sales and average sale prices increased, showing growth that was in line with long-term trends. But of course, we realize COVID-19 isn't SARS. In 2003, social media wasn't prevalent, so we didn’t see the type of widespread panic that's happening now. And we certainly didn't see the push for social isolation, the unprecedented closures and cancellations, or the potential for mass quarantines like the one that’s happening in Italy right now. But what this scenario does show is that Toronto has experienced strong consumer sentiment, even when faced with unique challenges.
Global financial crisis 2008
This crisis hit the Toronto market hard: we went from close to 8,000 sales in July 2008 to only 2,577 in December of that same year. Urban markets saw price drops of up to 4.4% and suburban areas fell even more. Let's keep in mind, however, that GTA property prices doubled in the five years leading up to 2008, and in some cases even tripled. So for those who had owned for a few years, that small drop wasn't a huge loss. And even those who had just bought recouped their losses quickly.
Then, in April 2009, demand went through the roof and prices hit record highs again. Buyers who were worried they'd overpaid when the market dropped turned out just fine: twelve years later the value of their homes has gone up even more than they ever anticipated. So moral of the story? Ride out whatever happens – the market will recover.
These two events (and others like the more recent Ontario Fair Housing Policy announced in 2017, which slowed the market significantly for over a year) show a pattern of how Toronto has reacted to unprecedented events in the past:
Step 1. There's panic and uncertainty.
Step 2: There's a period of no (or low) activity.
Step 3: Buyer confidence starts building again slowly, and a few sellers start listing their properties.
Step 4: Buyers clamor to get whatever they can because listings are so scarce, and demand drives up prices, prompting more sellers to list their properties.
Step 5: And we're back in the game.
With patience, some level headedness and a keen eye on the pulse of the market, things will rebalance themselves.
What should I do if I want to buy a property in Toronto right now?
Make sure you have access to your down payment (pull it out of investments).
Don't stop looking! Inventory is likely to drop even more in the coming months, so there will be even less to choose from.
Buying now will mean you face less competition, so you may be able to get a lower price than you could’ve gotten even a few weeks ago.
If you're concerned about visiting properties during the outbreak, don't be: we’re using virtual tours as often as we can, with only serious buyers doing in-person visits. And anything in the property you might touch (door handles, cabinet pulls, etc.) will be wiped down before and after each visit. Plus you'll get gloves to wear as you tour the unit.
Keep in touch with your lender to make sure nothing has changed. And also stay in contact with your Condo Pro: they have the market knowledge and real-time data to help you make informed decisions, fast.
What should I do if I'm a seller?
Expect less viewing activity on your listing. But that's not necessarily a bad thing: it just means the “tire kickers” are gone and only serious, well-funded buyers are still in the market.
Your property probably won't sell for more than the last comparable sale. Expect a price closer to late 2019 rather than early 2020.
Don't be concerned about having people in your home for viewings during the outbreak. We've got policies in place for virtual visits, which means only serious buyers will be there for in-person viewings. High-touch areas will be thoroughly disinfected before and after each viewing, and all visitors will wear gloves. See a full list of our COVID-19 policies.
Yes, we're living through some pretty trying times, and things will probably get worse before they get better. But remember, if the way the market has reacted to events and crises in the past is any indication, things will bounce back fast.
This blog is inspired by an article originally published by Ara Mamourian, Founder of The Spring Team and partner at Property.ca Leslieville.
About Ryan Wykes, SVP Sales
Ryan is a top performer, dedicated leader and mentor, and a gifted negotiator with a thorough understanding of business and marketing, especially in the Toronto real estate market. He’s been with condos.ca since 2012.