First, let me start off by saying that if you need help or are in urgent need of whatever please call or email me email@example.com or 416-434-1511 – my direct lines.
Let’s talk Covid-19/Coronavirus basics
Our friends over at Magenta Health have put together this great resource to help familiarize yourselves with what’s happening, who’s at risk and what you should do BEFORE running out the door to the ER. (hint, don’t do that)
Now that we got that out of the way, let’s talk real estate. We’ll discuss what’s currently happening, buyer/seller sentiment and actual historical data that should help you understand what is going to be happening over the next few months.
How have Toronto’s urban markets reacted during past crises?
No doubt, the Covid-19/Coronavirus is an unprecedented event in Toronto. Now I’m going to make some comparisons to 2003’s SARS and 2008’s Financial Crisis but COVID-19 is unique in that there will be many more local job losses due to the coronavirus. Depending on how long and how severe, this is the one and only factor that can and will affect real estate prices in the short term should people need to firesale their properties or default on their mortgages.
The big 6 banks have announced up to 6 months of mortgage payment deferrals so perhaps that will soften the short term blow. I’m confident it will.
I’ve spent my days talking potential sellers off the ledge and convincing them to sit tight and hold if there’s no imminent need to sell. All Sellers should evaluate their positions and act accordingly. Nobody wins in a panic.
SARS didn’t see this level of preventative closures and cancellations, the 2008 Financial crisis didn’t have anyone in quarantine and the Ontario Fair Housing Plan announced in April 2017 didn’t have the general population fearing for the health and safety of their loved ones.
The one thing they all had in common though was that they were successful in removing buyers from the marketplace and had a short term effect on the real estate market.
January – May 2003 SARS Outbreak
2002 was a banner year for Toronto Real Estate, especially in our urban markets so 2003 had a big act to follow. The introduction of SARS with the first case being reported in China in November of 2002 provided an up hill battle for 2003.
By the time news made it to Toronto it was April and a travel advisory to Toronto was announced by the CDC towards the end of the month. I remember living in Leslieville at the time and noticed a serious decline in community activity. Few people were on the streets and even fewer in the local businesses.
At the same time I remember the first semi detached house selling for $300K on Caroline Ave (the street I lived on).
I was digging through the TRREB market watch archives to get some hard data. It’s easy to get emotional and make assumptions but I’d prefer the hard data.
January 2003 saw a 9% decline in sales activity over the BEST EVER January 2002 so overall sales were very active while SARS news was just gaining traction. Most importantly sale prices were up 14.57% over Jan 2002 and list to sale price ratio remained at 100%.
Today we have social medial so news travels much faster and we experienced effects in real time much quicker than they’re able to be reported.
February 2003 – saw record breaking sales once again with sale prices increasing 8.01% year over year with no slow down in sight. Now keep in mind that SARS was spreading but news wasn’t really hitting Torontonians all that hard yet. Social was not really a thing and major media outlets hadn’t yet begun to get people all riled up.
March 2003 – Things were getting real now as SARS news hit the mainstream. Prices remained fairly flat in the East end with only a 1.5% gain yr/yr and 2.5% in Central downtown areas. Nothing dramatic but sales activity was still high and prices also climbing…albeit slowly.
April 2003 – Now SARS is really in the news with even the Toronto Real Estate Board mentioning in their monthly report as you can see below. Year over year prices here are actually flat with no real loss or gain across our urban communities. April 2002 saw over 8000 sales for the first time ever and April 2003 at 7300. Despite the SARS news buying activity was very strong and prices remained stable.
May 2003 – Travel advisory in effect and home prices in the East End surpassed $300K on average for the first time in history and for the 3rd time in history over 8000 sales across the entire GTA.
What’s the main difference between SARS and COVID-19?
I’m not about to get all Dr. Mammo on you here so we’ll leave the medical differences to the pros.
The main social difference is the isolation. The next level, unprecedented cancellations, closures and potential mass quarantine like Italy is currently experiencing.
If Toronto goes under complete lockdown then obviously real estate sales will come to a screeching halt. Urban real estate prices will not be affected.
What I want to help you understand with the timeline above is that Toronto has historically experienced strong consumer sentiment even when faced with unique challenges.
At the time SARS was a unique, unprecedented challenge.
Sales continued to climb till 2008
in 2003, toronto wasn’t the talk of the World. Toronto didn’t have Google committing to 500,000sqft of space for their eventual HQ here in Toronto. We weren’t considered a Tech Hub, a booming Film Town and hub of innovation. Cadillac Fairview wasn’t planning a 12 million square foot retail/commercial/transit hub in the middle of Downtown Toronto.
There’s a ton more attention here. There’s a ton more money here. Did you know that 40% of new immigrants buy real estate within the first year of coming here? Between that and all of the existing local demand, Toronto Real Estate will be fine long term. I challenge you to change my mind with a real life believable scenario that isn’t just saying “it happened in the US it could happen here” That’s complete bullshit.
Whatever happens right now, in the next couple months, will be short lived.
I promise you the Toronto Real Estate market will not crash. We’re not set up that way. For our market to crash there would need to be a massive spike in borrowing costs, massive job losses across major industries.
We’re not a one trick pony (Alberta). Finance went down in 2008. How did Toronto React? Let me show you some more data there.
2008 Toronto & The Global Financial Crisis
So we won’t go month by month on this one. Instead we’ll look at when the hammer dropped at the end of the Summer of 2008.
Strangely when going over the Toronto Real Estate Board’s market watch documents for 2008 onward not once did then President Marueen O’neill mention the financial crisis. Now I can’t remember what TREB was saying in the news at that time but was a surprise nonetheless.
While SARS didn’t affect Toronto sales activity, the 2008 Financial Crisis did.
We went from having nearly 8,000 sales in July 2008 right when the meltdown began to 2,577 sales in December 2008 when all the bailouts and complete fallout was felt across the board.
The urban markets experienced price drops of up to 4.4% in the East End communities like Leslieville and other districts such as Riverside to just over 3% in the core. Some suburban areas that I haven’t deeply studied dropped more than that.
But let’s keep in mind that from 2003 to 2008 house prices had doubled and even tripled in some communities so the 4.4% wasn’t much of an issue to homeowners and investors.
Folks that just bought prior to the Summer of 2008 had on-paper losses of 4-5%. Their mortgages were already locked in for 3-5 years, interest rates remained unchanged and they had at least 5% equity in their homes so worst case people were in a net even position.
There was no trigger to sell. Bank’s didn’t take possession of homes as people were not defaulting.
Everything just came to a halt for a couple months.
Then April 2009 Happened…the Modern Day Big Bang
Buyers were ferociously looking for property to buy but Sellers had been sitting tight and waiting. They were waiting for the uncertainly to clear before they put their properties on the market.
It took one brave soul to test the market, then BOOM! All hell broke loose. I remember during this time I sold a condo in Liberty Village for over $600/PSF for the first time ever.
Buyers were out in full force but there was nothing for them to buy. Early sellers were rewarded with massive sale prices.
Buyers were worried that they paid too much and they’d never get their money out. Well…fast forward 10 years and we know that’s not the case.
This same thing will happen after Covid-19 is contained. Mark my words, prices are going to go to levels we didn’t expect in our lifetimes after all this goes away.
and we haven’t looked back. Keep in mind that the average home price in the urban communities was just under $420K at the time.
We currently sit at an average urban home price of $1,125,417 in the East End, $854K in Central Core Downtown and $956K in the West.
What should you do if you’re a Buyer in urban Toronto?
Most importantly, GET YOUR MONEY OUT OF THE STOCK MARKET. Your real estate down payment money should be pulled out of any risky investment the moment you decide to buy.
You should continue to look for your next home or investment because if history is any indication, it’s going to be a lot harder for you and more expensive if you wait. Supply might be limited now but it will be more scarce in the coming months.
Comparable data will matter again! There will be less buyer competition out there right now so you may get a home you love for a little less than it might have sold for last week rather than X% over and above the last comparable sale as we’ve seen currently.
Consider buying in a pre construction home or in the assignment market. You can read about what an assignment is here.
Check in with your lender to make sure nothing has changed on their end.
Keep in touch with me as I’m in the market every day and have real time data that can help you understand what’s really going on. Just email me firstname.lastname@example.org or call/text 416-434-1511
What should you do if you’re a Seller in urban Toronto?
This is a tough one as you should expect much less activity on your listing today onward. But less viewing activity on your listing doesn’t mean you’ll be selling at a discount. Only serious, well funded buyers are in the market right now. Tire kickers are gone.
You will likely not sell your property for more than the last comparable sale. This has been happening quite a bit lately as buyer activity has driven up prices exponentially month over month. Expect sale prices to be comparable end of 2019.
To be clear – the future is quite rosy for sellers when looking at how Toronto has reacted to unprecedented events in the past.
First we have panic and uncertainty
Then we have a period of inactivity (low activity)
Then we have buyer confidence slowly resufacing
Few Sellers start to list their home
Sales go through the roof as buyers clammour to get whatever they can as listing inventory is so scarce.
Then BOOM prices spike again
More sellers try to take advantage resupplying the market
We achieve a bit of balance but Seller’s are still in the driver’s seat
Life goes on.
So with a little patience, some levelheadedness and a keen eye on the pulse of the market, everything will be fine. I promise you.
If you have any questions please call/email/text me anytime email@example.com or 416-434-1511 or sign up to my newsletter for regular updates
Thank you for your attention and we’ll see you out there! (well…not “out” but you know what I mean)