So I had the chance to finally sit down and plow through TREB’s 2020 Report, which is a whopping 63 pages long! Resultantly, this should be the longest Insight Article that I’ve ever written to date, but do not worry, I can assure that you’ll find some nuggets of gold scattered throughout. This week will feature Part 1 of 2 for the analysis of the report.
There are some really good charts that illustrate TREB’s outlook for the 2020 market. I’ve extracted the charts that I believe will have some importance to you. I will also provide my commentary on each of these charts. As a heads up, there are a good handful of charts, so get ready to absorb all of this helpful information!
New Home Construction was at an All-time Low in 2018 – The pre-construction condos and new build home sector of the market was at an all-time low in 2018. With the chart below, you can see that we didn’t even break the 24,000 units mark. This means that when these 2018 units are expected to complete in 4-5 years time (2023-2024), we’re going to have a further housing shortage in those years. Meanwhile, in 2016 and 2017, we had some of the biggest years for the number of units sold with over 40,000 units per year. We’re starting to see the completion of these projects this year, in 2020, and given where we are with the supply crisis, I expect that all of the units will be absorbed via rent and resale.
So then this begs the question when 2023 rolls around: If we’re not addressing the population or job growth rates now, then what do you think is going to happen to prices when we have even less supply from the lack of sales in 2018? Note: You can see that as we get closer and closer to 2020 in the chart, there are increasingly less single-family homes built and more condo pre-construction units because with the rising price of construction and land, developers have been building what nets them the most profit. This is proof that condo living is only going to be increasingly more common in the future.
Type of Dwelling in GTHA – With the chart below, this is what I would call the “Manhattanization” of Toronto. Toronto has become so dense and so expensive that high-rise apartments (condos) have become the largest portion of the housing supply; this is going to keep increasing. It was only 10 years ago when single-detached properties were the largest portion of the housing supply, but now that has completely shifted to condos. With chart #1 above, the “rise of condos” was apparent as well. You will notice that the 905 still mainly consists of single-family homes (approximately 50%). As condos in the Toronto core become increasingly more expensive, the 905 areas will have very dense condo pockets as well. You can already see that happening with Square One in Mississauga right now. Whether people are for it or against it, condo living will sprawl to the 905 and it will have an even greater presence; this is bound to happen, the market is shifting this way. Builders have already started buying up land in the 905, in high quantities. The semi’s and mid-density units (i.e., townhouses) are what is called the “missing middle” – we need more of these because it’s more affordable and more suitable for families, however, that’s not what is being built right now.
The Numbers Heading into 2020 – 2018 was one of the weakest years in resale but you could see some trends that followed into 2020. For instance, there will be more sales in 2020 as buyers are back in the market, which means higher average prices with less listings. This is the perfect storm for more price increases. TREB predicts that we’ll be at 97,000 sales volume and an average price point of $900,000 at the end of 2020. Three months ago, I predicted that (for 2020) we would be at 95,000 sales volume and that the market would peak at the average price of $900,000 in one month (vs. the whole year)… and some thought I was bullish with that prediction!
Lack of Listings – The chart below shows the 10-year average for the number of listings that we normally get. As shown in the chart, the average is between 150,000 to 160,000 listings. The only recent blip in the chart was in 2017 when the foreign buyer tax credit triggered people to put their house on the market. Outside of that, this chart shows that we don’t really have an increase in supply. If you actually look at the end of the chart, closer to 2019, you can see that we’re actually trending downwards for the number of listings. This is a disaster if we continue this way, given the increase in demand for units. TREB believes that the downward trend is because of the land transfer tax; the cost to move from one property to another in Toronto is easily over $20,000 in taxes alone. This cost can’t be amortized so many people are opting to renovate their home instead of buying a new one. Furthermore, when you mix that with the stress test making it harder for people to qualify, then that’s even less incentive for them to move.
Growth of the Micro Markets – The chart below shows you how each micro market has been performing in the last 2 years. You can see that condos have been on a tear and this micro market has only been increasing. You can see the freeholds were lagging a bit behind after the Fair Housing Plan and Stress Test (2018), but you can see that they started making a comeback at the beginning of 2019 and started increasing in price by the latter part of 2019. The memories of the Fair Housing Plan and Stress Test are behind us, so the buyers are back and every sector of each micro market is starting to heat up again. Another tidbit from the chart is that within the last 6 months, you can see that the price of freeholds is slowly increasing faster than that of condos. If this keeps up, then the gap between condos and freeholds will increase, leading to greater unaffordability of the latter. So if you ever wanted to upgrade from a condo to a freehold property, then now is the time to do it before the jump between the two becomes far too much to reach. If that’s you, then make sure you reach out to me at Zhen@PrimePropertiesTO.com and make your move now before it’s too late.
First Time Home Buyers – The chart below highlights a survey that was conducted on individuals who plan to buy homes in 2020. You can see that there was a dropoff in 2018 for first time home buyers, but they’re slowly increasing in numbers again. However, the narrative is still the one where first time home buyers who want to buy are priced out; the percentage of first time home buyers continue to be less than existing homeowners. You know what that means: Existing homeowners who are still buying are likely investors or buying for their kids. In other words, they have existing equity in their property and are rolling it into more properties. There are more investors out there than you think and that’s why you need to be one too if you don’t own any investment real estate.
Prices and Sales Continue to Trend Up but Listings are Still the Same – If you take a look at the chart below, we had a minor dip in sales in 2018 and a minor drop in price in 2018. Was that the crash and the dip that many had hoped for? If you didn’t make a move in 2018 (the supposed “bottom” of the market), then are you going to continue to stay on the sidelines? If you look at the yellow line on the chart, the trends are going the other way now. Even if you bought at the highest point in 2018, the average prices are expected to surpass that number this year! So where do you want to be on that trend line? In or Out? I know I’m doubling down over the course of the next 10 years!
The Wrap – Hopefully that was helpful information for you to digest and absorb. In summary, the point here is that the market has already shown signs of rebounding in 2020, and we’re in for some upcoming highs in the real estate market. Condos will continue to dominate as condo living is here to stay and will be the way of the future as Toronto continues to follow in the footsteps of big metropolitan cities like Manhattan. Not bragging here but it’s been apparent that my past predictions have been aligned with expert opinions, so even if you don’t believe me, do believe the research analysts, statisticians and economists who are writing these TREB Reports. The numbers simply don’t lie, and I’m here to break it all down for you – even before the experts report on it. So if you follow me, then you’ll be sure to get a heads start! Stay tuned to next week’s Insight Article for Part 2 of this TREB Report analysis series.
Until Next Time, Your Move. Your Future.