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Toronto Real Estate Market

Market News – What’s Next for the Toronto Real Estate Market?

A few days ago, I had a chat with the restaurant owner next door to my office.

He’s 60 years old and has owned the restaurant for 30 years.

He has lost a lot of business since the pandemic but good thing he has enough to survive through.

He told me that he’s going to up the price in his menu by quite a bit when things fully reopen…

Not because he needs to make up for his loss but because prices of the ingredients have quietly gone up significantly.

For example, he used to pay $35 for a box of eggs.  Since 4 months ago, he’s been paying $42 for that same box of eggs, that’s a huge 20% increase in cost!

So I asked him whether he thinks that inflation is coming along. 

And he said “Of course, with all that money printing!  You know, some of my friends retired thinking that half a million would be enough.  Now they probably need a million!  They might need to come out to work again to make more money.  Money is depreciating… Price is going up for everything.  Real estate prices are going up too, right?”

That’s a down to earth, 60 year old man’s analysis of the current situation.

And I think he’s absolutely right.

You see, sometimes simple and direct down-to-earth analysis is better than super complicated text book style analysis.

Just like CMHC (Canada Mortgage and Housing Corporation) 

As a government owned corporation, CMHC predicted that the mortgage deferrals would crash the market and forecasted a price drop up to 18%.

In January 2021, CMHC continued to defend its forecast and updated the number from an 18% drop to a 14% drop.

In reality, the average Canadian home price has gone up 25.7% since CMHC’s initial warning in May 2020.

Finally, last week on March 1, CMHC acknowledged that their housing collapse prediction was off and that they never pretended to have a crystal ball.

Well, no one has a crystal ball, but as a government owned company, they definitely could have made better judgement calls.

So today I’m going to share 3 pieces of information which would help you make your judgement call on how to grow your money.

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#1 The February Market Watch Report

With no surprise, the latest report released by the Toronto real estate board is again a record breaking one.

It says buyers remained confident in their employment situations and took advantage of ultra-low borrowing costs.

We went through this numerous times already…

Most people who lost their jobs due to the lockdown are not homeowners.  

And people who could work from home are financially unaffected.  In fact, they have more money to invest than ever because they have nowhere else to spend the money.

Whether we like it or not, the reality is that the gap between the rich and the poor will become wider and wider after the pandemic.

Going back to the report, condos led the way this time with 64% increase in sales volume.

For detached houses, 43.8% increase in sales volume and 62.5% for townhouses.

In terms of price, downtown condos are around 6.4% down compared to the peak before the pandemic.

Detached houses are 23.1% more expensive and townhouses are 17.3% more expensive than the same time last year.

You see, the price gap between low rise and high rise has widened in a very short period of time.

What’s going to happen next?

When townhouses become too expensive, people are going to have to go for condos instead.

And the price gap is going to naturally shrink, so that means either low rise prices come down or high rise prices go up.

Prices would come down when there’s no demand, right?

According to the report, the current relationship between demand and supply supports continued double-digit average home price growth this year.  

So we actually have a significant under supply.

Keep in mind that this is mainly local demand at the moment because our border is still restricted.

So if you ask me, I’d say it is much more likely for high rise prices to go up instead of low rise prices coming down.

#2 Survey of Toronto Downtown Workers

A recent survey conducted by Nanos Research shows that nearly 7 out of 10 downtown Toronto office employees feel comfortable returning to the workplace.

That’s really interesting because it suggests that many downtown workers are eager to get back to the office even though downtown Toronto is still in lockdown mode.

What do they like about working downtown?

The top responses are the vibe, energy and culture of working downtown, as well as the convenience and the amenities.

What concerns do they have about working downtown?

23.2% actually said they have no concerns at all.

13.1% are concerned about traffic.

Covid actually came after traffic, with 11.8% people concerned.

Here are some of the reasons why people are feeling fatigue about working from home.

Video conferencing is just not the same.  People found face to face interactions irreplaceable.

More snacks, fewer dishes, please.

Are you sick of cooking and washing dishes by now?

People miss going out for lunch, grabbing a snack and coffee with their work friends.

They also miss work events and parties.

Too much family time.

People actually appreciate some private time away from their families so they can focus on work.

So I don’t think a permanent work from home model will be sustainable and I do think a significant portion of the workforce will transition back to the workplace.

In fact, people are already voting with their actions.

The 64% increase in sales volume in downtown condos is telling us that people are confident that downtown Toronto will be back.

#3 The 2021 Immigration Target

With our borders remaining closed, it would seem impossible to hit the 401,000 immigration target for 2021.

But guess what?  Our government is still aiming to achieve the target.

Just last month, the Express Entry draw invited over 27,000 candidates to apply for permanent residence, that is 8 times more than a normal draw before the pandemic.

The immigration department says that they are going to focus on candidates who are already in Canada so they won’t need to deal with border restrictions.

If we do hit that 401,000 target this year, it’s definitely going to add more stress to our housing supply.

So we’re dealing with inflation and under supply, when those 2 things happen at the same time, it’ll be hard to see prices come down.

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