JUST WHERE ARE THESE PRICES HEADED?
And just like that, we are nearing the end of yet another year. But this year was not the same. Life was like a remote control; pause, stop, rewind, play.
Unlike lockdowns and closures of vast majority of small business, the continual rise of the residential real estate market could not be foreseen; at least when it all started. So what really gave rise to the month over month double digit gains in prices?
It is now norm that every home you lay your eyes on will have multiple offers before you even step inside the property. And if it doesn’t, then you’re not in the right home.
Interest rates are rock bottom and will remain until the economy recovers and inflation is back on target. While aware that its emergency pandemic policies are inflating house prices, The Bank of Canada has made clear that they plan to do nothing about it and will leave it to the federal government. A government which has spent unprecedented amounts in record time to limit the economic damage wrought by COVID-19, plunging the deficit to historic depths. Further, Canada's drop in GDP has made the economy even more dependent on real estate.
So who does this benefit? I'll outline three groups of people and their part for the rise in residential home values over the course of this year.
First, if your work involves the use of a laptop and a desk, it is more than likely you will be working from home for the foreseeable future. Corporate workforces have come a to a realization that they no longer need big office spaces with heavy overhead costs. Now if you were renting a condo near your office in downtown Toronto, it no longer makes sense to stay in the core and pay such high rental prices. Why not re-direct your high rents into mortgage payments? I mean if you had the option to move into something bigger than the tiny bachelor's unit and continue doing your work, why wouldn’t you?
In essence, the rise in demand for homes has put pressure on the downtown Toronto condo market. High vacancy rates have slashed rental prices upwards of 30% and for the ones that no longer see their condos as being a "good investment", are flooding the markets. When things normalize and working in the financial district can have it's fancy awes again, there will be tons of opportunity in the downtown condo market but for now, there is more demand for homes.
Second, the first timers are hunting the markets to take advantage of the low interest rates trying to get a hold of the rope before it becomes out of reach. Add a portion of condo buyers who are now stretching themselves to buy a home instead, and this group gets bigger. It's becoming impossible to find anything under the 700K in the GTA area. More than ever before, this has caused a huge tilt on supply and demand.
Lastly, let's talk about the home sellers; especially ones that are house rich. The upgrade they were always looking for is now possible; town to semi, semi to detached and so on. With the low rates and their high equity, the differential to that next home just became less significant; especially if there is 6 people ready to start a price war on your existing home.
Think about these three factors coherently in play as we end the year.
So what is going to happen as we step into 2021? I'm of the opinion that the residential real estate market is going to continue it’s trend upwards. There is no foreseeable roadblocks or government intervention as we end the year, just a free market running it's course; low supply and interest rates along with surging demand. There is a huge reliance on real estate to propel the economy forward as we get closer to a vaccine; and the residential market will be one to watch out for.
And lastly, if you are waiting for the spring market of 2021, revaluate and get an early start. It could take weeks if not months to find the right home if you are lucky. But if you insist on waiting, be ready to add some additional margin to your existing budget.
Published By: Sam Bakhshi