Welcome to my site on residential architecture, landscape, interior design, products and real estate in Canada. I'm Steven Fudge, a trained housing conceptualist and veteran realtor, who is fascinated with the multi-faceted dynamics of Canadian shelter. This article was originally posted on my Toronto real estate sales and marketing site Urbaneer.com, but it's extremely topical and relevant to many urban or semi-urban locations across Canada.
So, at the time of this writing, we're seven months and three weeks into a new reality from the unanticipated arrival of the COVID-19 pandemic. With the resulting lockdown we experienced in Canada starting March 13th, 2020 - our everyday lives have been impacted significantly and in many ways. If there's one essential truth I'm learning as a realtor working in the 'Toronto real estate trenches', it's that property Buyers and Sellers are reevaluating their futures, assessing their current quality of life, their attitudes and behaviours to work and play, and the direction they'd like to 'pivot' moving forward. Plain and simple, I'm witnessing a collective realignment of the way we navigate our place in the world.
It's also completely shifted the way the Canadian real estate market oscillates. Ever since the family-run Bosley Real Estate Ltd. started in 1928 (and my brokers and mentors for the past 25 years), Canada has traditionally experienced 'seasons to real estate' annually, where the purchasing and selling patterns of Buyers and Sellers fluctuate depending on the season, the climate, and the consumer focus and sentiment in any given time of year. Typically, these trend lines follow the same patterns - and in many ways mimic - those seen in nature. For example, the changing colours of the leaves, the shorter hours of daylight, and cooler temperatures of Autumn fuel the desire to nest and nurture, often in a new residence; our icy dark winters tend to incite hibernation and refuge with a resulting retraction from the market; while Spring thaws, breathes and blooms fresh beginnings with renewed optimism at the start of a new year. And during Summer, when the temperatures soar and the sun sets late, our focus typically is less on work and the pragmatics of everyday life to pursue languid leisure and time in nature, resulting in a quieter market.
I've always been fascinated by the interplay of our four seasons and the cycles of real estate, which prompted me to write this post called The Seasons To Real Estate back in June 2011.
We've Become Accustomed To 'Natural' Patterns In Property Trade
I was part of a real estate thinktank being led by a research department at the federal government recently when the topic of the “Autumn Canadian Housing Market” came up. The dialogue was about how we can no longer rely on the traditional seasonal pattern of the Canadian real estate market to forecast the direction most of our local real estate markets are heading.
While the 'Seasons To Real Estate' are philosophically part of the 'natural order' in the trade of real estate, now is a good time to mention the role of government intervention - federally, provincially, municipally (and even locally through exclusionary zoning as I touched on in my pieces called 'Toronto Real Estate, Yellowbelt Zoning & The Missing Middle: Part One & Part Two') also shapes our real estate markets. Stay tuned for a future post that addresses this in more detail.
In the meantime, the Autumn market - which is around 14 weeks long - has historically been an active time for buying and selling. And, the most recent stats from September 2020 suggest that it remains solid. But, I caution you to be wary. First, it's not unusual for real estate stats to be skewed by macro generalizations. For example, right now a lot of media is saying that the overall market remains a Seller's market and that the volume of sales is up substantially. However, the reality - in the original City of Toronto - is that the many micro-markets which exist under the umbrella of 'Greater Toronto real estate' are now oscillating according to their specific locations, the size and condition of each different property type situated in those areas, the number of listings of each property type, and the demand - or not - for the different shelter options offered for sale.
Welcome To The Season Of COVID-19
Since we moved into lockdown, the Canadian real estate market has shifted in a manner entirely different from previous patterns. Hello, wonky and unpredictable market! From my lens, the traditional seasons to real estate have been derailed and the dynamics of real estate are oscillating differently from week to week. In a recent Top Producer Zoom Call at Bosley Real Estate Ltd., Brokerage my associates and I shared how we're each witnessing fluctuations in value, and a shift in the number of 'days on market' depending on the location, property type, price point, and the number of similar properties for sale nearby.
Yes, on the one hand, the March 13th lockdown succeeded in delaying pent-up demand that we would typically associate with our traditionally busy Spring market. On the other hand, the lockdown 'froze the market' and, because the federal government introduced financial assistance to all Canadians in need and lenders offered a six-month deferral on mortgage payments, the real estate market operated in a partial vacuum, which prevented any detrimental shift from occurring substantially, until recently. Now, with the closure of the government's Canada Emergency Response Benefit (aka CERB) on September 26th (there are new supplemental programs available for some) and the Mortgage Payment Deferral - swiftly implemented in the wake of the pandemic now over as of September 30th (here's a great MoneySense article on it) we're now heading into a 'Reality Check'.
Instead of the 'Seasons To Real Estate', it's now the 'Season Of COVID-19'. And with the buying and selling behaviours, choices, and decisions of many people operating from a personal point of view right now rather than through the collective seasonal pushes and pulls, it's basically a free for all. There are Sellers who are getting off their sinking ships; there are Buyers snapping up condos by submitting aggressively low offers; there are junky houses that renovators and second-time buyers are hesitating to buy over supply chain issues, and there are 3 to 9 offers every night on turn-key family-friendly homes in desirable locations. The flight to the suburbs, exurbs, and the rural-slash-cottage country are real. The urban estate is a hot commodity. Rich people who were recently securing shelter as a badge of self-actualization are now buying for physiological and safety motivations - the two lower rungs of Maslow's pyramid (my post on the subject for Buyers and for Sellers) - wherever they choose.
It fascinates me.
But it's also made it impossible to predict where the condominium and freehold markets are heading, as well as the motivations and desires of both Buyers and Sellers. At extremes, the high-density high-rise city towers are faltering and the single-family freehold houses are buoyant, but the reality is there is no consistency like there once was with the traditional seasons to real estate.
My Observations From The Real Estate Trenches
Here are some of the changes that I’ve noted over the last several months since lockdown:
On April 7th I wrote in Assess Your Risk: Buying & Selling Toronto Real Estate During The COVID-19 Pandemic
"Over the next 4 to 8 months – and for as long as the Canadian economy is frozen or in flux – I suspect we'll see an increase in the number of properties being listed. The greater the economic (and mental and emotional) tolls the pandemic fosters, including the chain reaction that occurs when, for example, one company declares bankruptcy forcing all its partners to do the same, the likelihood even more properties will come to market for sale.
At some point, the media will spin the doom and gloom news documenting the economic hardships of the pandemic with such intensity it will, in turn, prompt buyers to withdraw from the market in anticipation real estate values will experience even bigger drops in value. This will, in fact, exacerbate market conditions. It's too premature to estimate how significant Toronto property values will be impacted, but under the best of circumstances, the better properties (in terms of size, condition, and location in the original City of Toronto) will suffer modest declines in value, while inferior properties – or those located in areas where there is a greater supply of properties listed – will experience significant price drops."
COVID-19 And The Condominium Market
Over the past few weeks - though depending on the location of a condominium this started earlier - many realtors who have this property type listed for sale have commented on the collapsing level in interest. Most everyone is hearing crickets while the number of showings has dropped dramatically.
Since lockdown. the transaction of most sales represents the motivations of every Buyer and Seller to make a change, without the competing pool of speculators, investors, and first-time buyers (more or less). A lot of people have made significant lifestyle decisions and changes since COVID-19. Confident sellers who were once attached to achieving a specific value for their property (thanks to a consistent escalation in prices for decades) are now eager to accept what the market is willing to bear in order to extract their capital for the next chapter of their lives.
Furthermore, given those who were deferring their mortgage payments are now back to honouring their obligations, as are those in rental accommodations, we're now entering more volatility than we've ever experienced. Whereas there was a tremendous push in sales during the summer as families needing more space climbed the property ladder to maintain their sanity and their quest to secure their 'forever home' (more on that segment below) - often by young families in condominiums - we're seeing a flood of condominium listings, particularly those in high-rise high-density towers, at a time where the second wave is causing renewed uncertainty and hesitation, particularly for that type of dwelling. In high-density buildings, with large numbers of people forced into close contact in lobbies and elevators, there's an increased possibility of spreading COVID-19, which has Buyers (and owners) feeling wary.
This flood of product for rent and for sale - particularly the smaller one bed (+ den) suites in the lower price points that were attractive to first-time buyers and Mom and Pop investors (who can no longer rent their 'ghost hotels' on Airbnb as wrote in January 2020 --> Dear Urbaneer: So Why Are There New Airbnb Regulations For Toronto?) - combined with the lack of Buyers is impacting the filtering of housing stock which is necessary to keeping a healthy real estate market humming. In other words, condo owners who would like to climb the property ladder into larger homes aren't garnering sufficient interest and sale sums for their smaller suites to be able to afford a bigger dwelling.
Here are three recent headlines reflecting my predictions from the Spring. Most of these are focused on the condo market. Bloomberg Wealth published how Condo Listings Surge 215% In Signal of Downtown Toronto Weakness; Better Dwelling posted Toronto Detached Real Estate Prices Rise, While Condos Slip Lower; and in the Financial Post Tiny Condos Now The Biggest Losers In Toronto Real Estate Market Shakeup.
Not only has COVID-19 delivered a punch to the condominium market due to the concerns associated with mid or high-density living, but it has also struck the housing segment hard with respect to rentals and Airbnb hosts. Many of the units in high-rise condo buildings clustered in similar urban locales (and dating from the 90s and 00s) are tired, dated, and in need of a refresh. They're typically investor-owned, with a good portion used as short-term rentals. When COVID-19 arrived, these investment properties were the first units to become vacant. Those which did have long-term tenants started to see their tenants vacate, if only to a similar rental unit a few floors up but renovated and $300 a month less (rents are dropping due to competition and over-supply). Mark my words, there are a lot of tenants moving into different digs for less money than what they were paying, or they're moving into better digs for the same money. With a tsunami of rentals coming to market and a flood of listings for sale, it will be interesting to see what investors do over the next six months, as many investors were already running their rentals in a negative cash-flow position. And, should prices plummet, will those first-time Buyers in their small 1bed (+den) see themselves in negative equity and walk-away in default, knowing their high-ratio mortgages are insured by CMHC?
I have always maintained that if there were an Achilles Heel in the Toronto real estate market, it would lay firmly at the foot of the condo market, due to a large supply of similar properties that are owned by two potentially fickle groups: the first-time Buyers and the Investor. If the sentiment shifts to one of liquidation (by choice or necessity - including mortgage defaults) within a similar time frame, it effectively depresses prices for property owners in the same location, similar building type, and similar calibre of finishes. This has always hinged on the necessity of an oversupply of shelter in the face of demand, long considered a preposterous notion, and yet few of us could have predicted the swift and heavy kick a pandemic (hello!) would deliver to the global market.
As a condominium Buyer or Seller, the most unique of properties with Buyer-coveted features will increasingly stand out in a sea of ubiquitous high-rise crackerjack boxes for sale or rent. Buyers will always pay a premium for a Triple AAA location, social-distancing amenities, intelligent floorplans, quality finishes, a protected view and - more than ever - outdoor space and units closer to ground level where residents can take the stairs or have their own front door. I've witnessed The Increased Desire For Outdoor Space In Toronto Condos During The Covid-19 Pandemic. But that doesn't mean even the best of the best of condominiums isn't at risk of dropping in value. The condo market is flipping like an over-easy egg (or is that over-hard?) and Sellers risk losing the financial gains this property type has been making consistently since 2015 (while, incidentally, the freehold housing more or less flatlined with the Ontario Fair Housing Plan intervention in 2017).
Buyers Seeking Forever Homes Still Going Strong, But For How Long?
While the condo market is teetering, it's less so for freehold houses during the Season of COVID-19. With an increasing desire for more space and private outdoor space, both for health and safety reasons, Buyers have been in hot pursuit of the better freehold homes for sale. Demand is extremely robust while supply is, shall I say, more limited than condominiums. However, I'm anticipating we'll see more choice coming for Buyers seeking city houses, as a lot of Zoomers are getting ready to cash out now that the decade of skyrocketing values is coming to a close. They're going to put their money in a safe liquid investment vehicle that generates 4% per annum so they can retire in isolation (or, more likely, in a multi-generational home or compound).
As I explored in this post from earlier this spring, Demand For ‘Forever Homes’ In Toronto’s Downtown Family Neighbourhoods Persists Despite COVID-19, the economic reality in terms of job security, and as some sectors were disproportionately affected by COVID-19 closures and work from home arrangements, the Buyer pool became largely fragmented.
Those prospective Buyers lucky enough to adapt easily from an employment point of view, with minimal interruption to cash flow are still on the house hunt and highly motivated, in opposition to some of those who may have been sidelined by the economic impact of COVID-19. Specifically, this Buyer segment is very keen to purchase their “Forever Homes” – and are quite willing to pay top dollar, especially if they already live in their desired neighbourhood but need more space. While the selling sums of freehold dwellings during the Summer were particularly substantial, the rationale to pay top dollar premiums was viewed by many as an emotionally and fiscally sound strategy. From the trenches it wasn't really about strategy, but about getting their darling children into a bigger Child Zone of a house, while the need for a 'master retreat with spa sanctuary' went from the wish list to a MUST-HAVE! As interest rates dipped down during lockdown, this Buyer pool has been willing to aggressively pursue this market niche.
In my Forever Homes post, I chronicle several instances throughout the summer where this part of the downtown housing market consistently showed price appreciation and high activity with updated listings. And on the flip side? Yes, The Movement To Hipsteading During The Covid-19 Pandemic & Toronto Real Estate is happening full-throttle as we go crazy to pick, pickle and preserve, and Bake! Bake! Bake!
A Shift In Strategy
So what to do when the market is wonky? Either sit tight and ride out the 'Season To Covid-19' for the foreseeable future (basically, until we have a vaccine), or hire a realtor who has the knowledge, strategy, and experience to smooth the potential turbulence of your specific Canadian real estate market purchase or sale. As the Canadian housing market shifts from the global fall out of the pandemic, so must we navigate our unique course to successfully steer our personal journey. This current situation, although unprecedented, does support the concept that the real estate market is a cyclical process of ebb and flow.
So how does one sell a condominium in the current climate? I discuss one of our success stories in How Urbaneer’s Tailored Toronto Real Estate Marketing Sold This Condo During The Pandemic.
How do we guide our Buyers? From my Dear Urbaneer Series here's How Do I Know This Is The Right Home To Buy? or check out How The Urbaneer Team Help Buyers Make The Right Real Estate Purchase.
Want a lesson in The Psychology Of Real Estate, Housing & Home?
Whether you are buying or selling, a data-driven, tactical strategy is essential in order to achieve your real estate goals. With decades of experience navigating the -at times- turbulent currents of Toronto real estate, I have 28 years of experience, perspective, and negotiation skills to steer you on your path forward.
~ Posted by Steven Fudge, the purveyor of houseporn.ca and proprietor of Urbaneer.com, a division of Bosley Real Estate Ltd., Brokerage.