Greetings from our self-isolation home to yours. I hope you and your family are safe and healthy during this unprecedented and challenging time. Quarantining and social distancing has affected every one of us to different degrees, but I am heartened by the outpouring of kindness and the many good deeds that have come out of this pandemic.
We all miss our community so very much. We miss you coming to our St. Clair office to show off your new grandchild, to talk about the latest restaurant opening, to share stories and to ask for real estate advice. But have faith – I know we will have the opportunity to be together again – hopefully soon – and we are so looking forward to welcoming you again!
In the meantime, I thought you might be interested in our perspective on what is going on in the Toronto real estate world. We have fielded calls from many of you and most of them boil down to: What is my property now worth? Are any properties selling? Should I sell/buy now or wait?
The answer is no one truly knows. This moment in history is so unique and probably beyond anything any of us could have ever imagined.
What follows is a snapshot of what is happening now. And, drawing on my thirty-one years of experience which includes a few recessions, I will also offer a couple of possible scenarios that could play out down the road.
While real estate has been declared an essential service, our governing body and professional associations have encouraged us to only engage in transactions where the both the seller and buyer have an absolute need to sell/buy.
Since 1996, the primary method used to sell a property in Toronto has been to list, set an offer date (usually six days in the future), allow a herd of buyers through the property and finally hold an auction like sale on offer night. This usually resulted in five, ten, even as many as twenty offers or more for the seller to review. It was easy for the seller to go with the highest bidder and then pop a bottle of champagne.
Needless to say, with social distancing and the general fear consumers have of entering people’s homes, a bidding war is now less likely to happen.
In the “new normal” where public open houses have been completely banned, here’s the process when listing a property today:
- First, staging has been put on hold as many stagers are not working and furniture rental businesses are closed. So today a buyer will typically view a property that is vacant or in its current “lived-in” state. Alternatively we can arrange virtual staging of the property or for a stager to join us on a Zoom call to advise on using existing furniture to show the house at its best.
- The seller has to find a place to go when a buyer is visiting the property; more challenging because of social distancing rules.
- Get a photographer and an inspector in without violating physical distancing protocol.
- Employ new and unique online marketing tools – 3D virtual tours, video walkthroughs, virtual showings and holding virtual open houses – an online video tour hosted by the listing agent. The public can view the property in real time, ask any questions they might have.
- Set up an in-person showing with proper precautions including declaration about COVID-19 symptoms/exposure that all parties entering the house must sign or set up a zoom or facetime virtual showing with the buyer.
- At the time of showing the seller leaves lights on and doors open so the buyer does not have to touch anything.
- Offer sanitizers, masks and gloves and instruct buyers on proper safety protocols.
- Deal with offers electronically, conduct Zoom calls to go over details and finally the lawyer will close the transaction virtually.
How has all this played out since the Provincial shut down the middle of March?
Statistics since March 15 show a significant decline in number of unit sales of about 75% to 85% depending on neighborhood. This decline has held firm since social distancing measures have been implemented. Totally predictable considering that consumers are isolating.
What about prices? Have they dropped? The answer is that they have for some properties – and the degree to which they have slumped depends on the seller’s motivation; The largest declines are where circumstances force a sale and unfortunately, this is a trend we have seen. Prices for some properties are off by at least 5% – 10% or more from the peak of early March in many central neighborhoods. Inventory (listings) have also declined since sellers are not keen to interact with the buying public during the lockdown.
There have been pauses and downturns throughout the decades, but this is unlike any we have ever experienced before because this is a global health crisis. There is absolutely no data for such a scenario. So, the big question is, what’s in store for Toronto real estate?
I read voraciously and Zoom conference with many industry experts weekly and there currently seems to be two schools of thought:
Some think real estate prices and unit sales will come down significantly. This thought process is influenced by many economic realities:
- High unemployment unlike anything we have ever seen
- Household debt levels are at an all-time high – and climbing
- Impaired investment portfolios will prevent many parents from helping financially as in the past
- Lower immigration due to closed borders (at least for the short term)
- Many businesses will close their doors for good
- Airbnb rules have been tightened, making them less lucrative, which will bring more properties on the market
- Multiple family dwellings are less desirable as landlords are fed up with the LTB being so pro-tenant
- Consumers will generally be more cautious about spending as this pandemic has jolted many and reminded them about the importance of saving for a “rainy day”.
The other school of thought says prices and demand will not come down because:
- There will be pent up demand because we did not have a spring market
- Low-interest rates coupled with less competition on properties for sale will spur buyers who have secure jobs
- First-time buyers will be encouraged because it will be cheaper to buy than it has been for a very long while
- Notwithstanding this downturn, real estate is a more stable investment than the stock market
- Based on various circumstances, people always have to buy and sell (estate sales, divorces, job transfers, migration, retirement and also, people outgrowing their homes especially with home offices becoming a more permanent norm, for many people).
Here’s my take:
First, this is unlike anything we have ever seen. Social distancing will be a part of our lives for a while. However, each time we experienced a real estate pause, the following has happened:
- Push/pull scenario between buyers who want discounts and sellers who will hang on to peak prices.
- Buyers will try to time the bottom of the market and miss the opportunity.
- Banks will scrutinize deals more closely and financing will be harder to come by.
- Properties will take longer to sell.
- By the beginning of summer there will be an increase in inventory as many sellers are holding off now which, in turn, will soften prices unless buyers also return to the market.
- The buyer pool will be reduced, and sellers will list closer to market value rather than trying to create a bidding war.
I think we’ll experience a zig zag housing market for the next 12-18 months which will fluctuate depending on the economic data that is released regularly. But, ultimately, I think there will be downward pressure on prices until the pandemic is under control. Benjamin Tal, Deputy Chief Economist CIBC, says “given the panic, given the fear, given the uncertainty …. we will see reduced demand and it’s not unthinkable that we will start seeing… prices falling in the summer or into the fall.”
Eventually prices will rise to the peak (pre-Covid) levels once again, but how long that will take depends on how much prices fall. In April of 2017, after the Fair Housing Plan was announced, prices dropped by about 15%, within a five month period, and it took 18 months for prices to reach the peak of the spring of 2017. However, in 1989, prices dropped for 7 years by about 40%, and then it took 4 more years (in 2000) for prices to reach 1989 levels. So the more prices drop, the longer prices will take to recover.
So, what to do? Every situation is different and therefore every piece of advice we give will be different. Here are four possible scenarios:
- Move up buyer: If you want to move up, it is cheaper to do so in a downward market. e.g. if market prices drop by 10%, the dollar value of the reduction on a higher priced home will be greater than that on a lower priced property, thereby making the move less costly. But I caution you that unless you can afford it, I would absolutely not buy a property without conditions, before selling your current one first in this climate.
- First time buyer: If you were having difficulty breaking into the market because of the fierce competition and you have a stable job, it will be an opportunity.
- The luxury market may take a price hit because those buyers likely have significant stock-market investments that have dropped or could be business owners who have had shutdowns. These sellers may want to wait it out, long term, if they can.
- Cashing out: but, if you have to cash out of the housing market within the next 18 months, you may be better off doing it sooner rather than later – when there’s a period of low supply on the market.
That being said, every property is different and every situation is different. Therefore, the advice we give will depend on many factors: timing, market conditions, supply vs demand, the individual personal circumstance of each client and the uniqueness of the property, etc. But now, more than ever, the consumer should deal with realtors who are well informed, trustworthy and experienced in their field.
Please feel free to call us at 416-568-0001 or email me, confidentially at email@example.com
if you want to discuss your personal situation. It will be our pleasure. In the meantime stay safe and healthy.