After being governed for years by high housing demand, short supply, and high prices, the Toronto real estate market changed its course a bit after the first wave of the pandemic. With the economies reopening again after COVID-19 lockdown, the Downtown Toronto real estate market sees more sellers than buyers out there for the first time in the past 20 years.
The Downtown Toronto real estate market is witnessing a slight shift towards a balanced and even a buyer’s market at times, which was not the case since the financial crisis of 2008. Let’s take a closer look at the altering dynamics and how the pandemic impacted a market shift.
The sales-to-new-listings-ratio dropped below 70% for the first time in decades in Toronto
In the past couple of months, Downtown Toronto sellers returned to the market in a bigger number than homebuyers, leading inventory levels to rise quickly in generally supply-strapped Toronto. The sales-to-new-listings ratio (SNLR) stood at 58% in May, and even if this figure suggests a rather balanced market (when the SNLR is between 40% and 60%), it is still a drastic drop for Toronto, which usually has a 70% and above sales-to-new-listings ratio.
Rental rates also saw a decrease
While home and condo prices stayed either steady or increased in Downtown Toronto, the rental market saw a different outcome. We have seen one-bedroom condos go down by 2.2% and two-bedroom by 1.8% in price year-over-year. Given the new circumstances, it does not come as a surprise. Toronto’s rental pool was affected by the dramatic cut in Airbnb rentals and tourist visits, as well as many tenants temporarily losing their jobs and moving to more affordable areas.
The rental pool shrank further with immigrant levels going down, as well as international college students not being required to live in Toronto anymore to attend university. With universities shifting to online teaching, international students are enabled to study remotely from the comfort of their home (countries).
Toronto normally hosts around 75,000 international students annually, so with them gone, the gap in the real estate market widened further. On the other hand, this also relieved the normally overburdened rental market which had a 1% vacancy rate for years.
The entire shift in the rental market may motivate investors and landlords to put their condos up for sale, which again would boost more inventory in Toronto.
Homebuyers may hope for price drops but there is a cost to it
Encouraged by the lower demand in the housing market and lower mortgages, a fraction of condo buyers used the opportunity window to reenter the market, but as of July 1, 2020, homebuyers are facing new CHMC restrictions that further reduces their purchasing power.
The CHMC amended its eligibility criteria, which now require a higher credit score (680 instead of 600), a lower income-to-debt ratio, and buyers will no longer be allowed to use borrowed funds for their down payment. Such a strain on condo buyers will further keep them hesitant and out of the market, and subsequently, it will reflect on the prices. The CHMC predicts Canadian home prices to decrease between 9% and 18% within the next 12 months, which will yet again represent a new milestone for buyers and sellers.
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