Welcome to my blog on housing, culture and design, where we explore the many facets of housing and home in Toronto.
In this post, given housing often occupies a lot of real estate in the media (pun intended), especially in a city like Toronto, where lack of supply, rapidly rising prices and eroding affordability are impact daily living, we're distilling what the pundits are forecasting about Toronto real estate in 2020. After all, at the beginning of every new year - like clockwork - pundits scramble to share their seasonal prognostication as to what lies ahead in local or national real estate markets. This year the clamour is particularly loud, undoubtedly because we're on the brink of a fresh decade, following some of the most turbulent years Canadian real estate has ever experienced.
While it’s difficult to chart with full accuracy the path that this year's housing market will take, given the persistence of several economic fundamentals that have historically shaped the market, a number of pundits, analysts, and media figures have developed various theories on what lies ahead for Toronto real estate. (Speaking of economic fundamentals and market observations, have you checked out the most recent editions of our real estate forecasts? In these, we examine some of the ongoing influences in our frenetic real estate market, as well as looking at how these influences have shaped annual trends and ultimately changed buyer and seller behaviour across various segments!)
So what lies ahead for us in 2020?
Let's look at some of the dominant narratives in Toronto housing at the moment - and what they imply!
2019 Ends With a Bang
Although the Toronto real estate market cooled in 2018, due in part to the introduction of a flurry of Government policies restricting borrowing - and ultimately purchasing power - for buyers, the dampening effects seemed to wear off mid-2019 and the market ramped back up again.
After reaching lows not seen in a decade the year prior, sales activity in Toronto made a strong finish in 2019; the numbers suggest that the market continues to tighten, and that the ongoing supply issues and increased buyer competition are placing an upward pressure on prices.
According to December stats from TREB, the average selling price in December was up close to 12 percent, compared to the same month in 2018. 12 per cent in just one year! The condo market was largely responsible for the price gains, which indicates continued strength in this segment heading into 2020.
Supply And Demand Gap Growing
Yes, 2019 got off to a very sluggish start, but economists attribute factors like restored confidence in the economy and continued population growth in Toronto to the uptick in sales. Notably, a lack of supply during that period combined with a growing buyer pool created the pressure to accelerate the rate and amount of price appreciation. While the number of sales actually dropped in December, prices hit highs not seen in years (i.e. pre- Fair Housing Plan), pointing to a near-critical supply and demand issue.
For further reading, we suggest, “Tight Toronto Housing Market Pushes Prices To Record Highs With Biggest Gains In Three Years”. This article discusses how, despite the introduction of Governmental measures to cool the market, supply hasn’t been adequately addressed. And as supply lags behind demand, prices skyrocket. Follow it up with Toronto Real Estate Prices Soar As Sales Come In Higher Than New Inventory” and “2020 Home Sales In Canada Forecast To Recover From "Slump".
This has been the characterizing trend in Toronto real estate of the 2010 decade, where a persistent lack of supply - in relation to exploding demand - has been one of the major factors (if not the major factor) in causing prices to climb and climb, while affordability erodes. Back in 2010 I started writing about the factors impacting values, each of which exacerbated the marketplace, as I wrote in this 2017 post called 7 Reasons Why Toronto Real Estate Prices Have Skyrocketed Over The Past Decade.
Conventional wisdom would suggest that, given that, although supply issues have begun to be acknowledged and addressed by policy makers, the rate and scope of the solution to date lags far behind the problem, which means that heftier price appreciation may be on the horizon in 2020, according to this new release from TREB. Finally, read, “Toronto Home Sales Jump 17.4% In December, Average Price Up 12%”
Yup, Real Estate Prices Are Continuing To Climb
The general consensus among many of the pundits is that real estate will become even more unaffordable through 2020.
For starters, according to this forecast from Royal Lepage, average condo prices are expected to increase to in the GTA to $600,000. While the median price of two-storey freehold homes is expected to hit $1,027,200, as noted in the article “Toronto-Area Home Prices To Surge Past $1 Million In 2020", detached homes in the city of Toronto have long overshot the million dollar mark - remember 2017? They also note that, although many millennials have outgrown their condominiums, moving up the property ladder at this point in time will be a major challenge (and for some, impossible); this is thanks to stiff buyer competition with middle-aged families who have greater buying power, and the 'I'll never downsize' Baby Boomers who continue to sit on large family homes to 'age in place'.
This housing outlook also forecasts price appreciation in Toronto, thanks to continued economic prosperity, good local employment and continued population growth. Toronto continues to be a major centre for immigration, and with increasing corporate investment and growing employment opportunities, growth is expected to continue.
CMHC feels that price appreciation will continue in the Toronto area, but feels that supportive economic fundamentals will grow alongside, mitigating financial vulnerability created by price appreciation. The Bank of Canada is afraid of "froth" returning to the market, referred to in this article "Canadian House Prices: Be afraid. Be Very afraid"
Not everyone agrees that prices will climb in 2020. According to debt assessment firm Fitch Ratings, prices will actually fall next year, due to affordability and high levels of homeowner indebtedness. Click here to read, "Canadian Home Prices To Fall In Real Terms Next Year As Affordability, Mortgage Rules Bite: Fitch"
Low Interest Rates Persist
Mortgage rates continued to be low in 2019, which helped to soften the blow of the mortgage stress test for hopeful buyers. The low rate environment is likely to continue through 2020 according to Bank of Canada’s Governor, Stephen Poloz, which will help borrowers get into pricey markets.
While lower rates are a perceived boon to buyers, they will also give buyers the opportunity to pay more for housing, which could contribute to price appreciation as well.
As homeowners take on more and more debt, there are other implications that impact overall financial health, as well as create financial vulnerabilities in the market as a whole. This CMHC report “Mortgage And Consumer Credit Trends: Q4 2019 “showed that indebtedness is increasing, particularly in Toronto, which comes as no surprise. Housing prices far outpace income, meaning that debt instruments are required just to “afford“ a home.
What is very interesting from this report is that the amount of mortgage debt is growing among homeowners 55+ and not among first time or younger homebuyers, who typically account for much of mortgage debt, as they haven’t had a chance to build home equity yet. Carrying more mortgage debt later in life may impact retirement savings or may mean that people need to work longer, just in order to service the debt. Why is this happening? From my work active in the 'real estate trenches' I attribute it to the assistance of the Bank Of Mom And Dad who are helping the younger generations get onto the property ladder. Today it's not uncommon for parents to purchase a condominium for one or more of their children to occupy, with the objective that perhaps one day in the future these parents will occupy it themselves when they downsize.
Government Policy Touching Down In 2020
All of the political parties included affordable housing as part of their platforms during last fall’s Federal Election, which I explored in detail in The Federal Election And The Canadian Housing Market.
It seems that some of those election promises might filter into the market during the next year, starting with relaxing the mortgage stress test. The mortgage stress test did have impact in slowing the market, but it was criticized because it created more challenged for already-struggling homebuyers trying to secure properties.
Trudeau has asked his Finance Minister Bill Morneau to “review and consider recommendations from financial agencies related to making the borrower stress test more dynamic”. Although vague at this point, relaxing the mortgage stress test could increase purchasing power, which could also put upward pressure on prices. Click here to read, “Morneau Ordered To “Review” Stress Test. What Can We Expect?”
In this article, "CEO Of Canada’s Biggest Bank Calls For Caution As Ottawa Considers Adjusting Mortgage Stress Test”, several economists urge caution and restraint in making changes to the stress test. Arguably, the stress test plays a role in making buyers think twice about loading up on debt in a low-interest rate environment, but too radical a change in too short a period of time can also have negative effects.
Trudeau had also campaigned on expanding the FTHBI credit, which could also increase the buyer pool. And of course, the more buyers there are, placed against a shortfall of supply, will only push prices up.
This is all still conjecture, but if the multiple housing changes promised in the election actually came to pass, there would be significant impact on Toronto housing prices. In this story, “CMHC Head Sounds The Alarm On Housing Policies That Push Up Prices”, CMHC head Evan Siddall warns that if altering various Government measures in order to aid with affordability, their research indicates that Toronto real estate prices could rise by as much as $40K.
What Should We Expect in 2020?
The consensus is that the market is beginning to look a little like it did prior to the implementation of the Fair Housing Plan, suggesting that while Government policies did have impact on the market, the effect was short-lived. Analysts are urging policy makers to proactively and aggressively address the root cause of eroding affordability: lack of supply.
There's no question the lack of supply has long been behind Toronto’s affordability problems. And we've been writing about from for some time now. Click here to read our posts on how archaic zoning bylaws are hindering the supply side of Toronto Real Estatet, how urban design and development could accommodate Toronto's missing middle and our analysis on how a lack of supply will fuel the Toronto real estate market.
Click here for some interesting predictions on what's to come in 2020 for Toronto real estate: “Toronto Home Prices Likely To Be Hot Again In 2020 After 4 Per Cent Increase Last Year", “Predictions For Canada’s Mortgage Market In 2020" and “What’s In Store For 2020? Zoocasa’s 5 Housing Market Predictions".
Do you have any real estate objectives for 2020?
It would be our pleasure to help guide you through the opportuinites and constraints of the Toronto real estate market.
If you're interested in learning more about the Toronto market through our lens, consider reading some of our other posts:
May my team and I become your realtors of choice, and guide you to the best of the best Toronto real estate as it meets your wishes, wants and needs?
Thanks for reading!
-The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
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