Amid the pandemic, a lot of headlines have been devoted to the exodus of people leaving large urban centres to find properties with more room to work and live in the suburbs.
As the preference for ground-level homes with more space increased, pressure formed on the condo market, while a critical decrease in immigration (that usually helps drive the market) served to only further depress demand.
Though, with most of the country reopened and the return to the office looming, the condo market is poised to have a major comeback, according to Benjamin Tal, deputy chief economist of CIBC.
On Thursday, Tal joined Miles Nadal, founder and executive chair at Peerage Capital, to discusss how the real estate industry has performed so far this year, and what's expected in the months to come.
During the discussion, Tal shared with Nadal that he believes the Canadian economy is poised for a strong recovery -- particularly given that households sitting on excess cash -- and that the growth of recovery is going to be strong.
As the economy recovers, and a sense of normalcy resumes, residents are expected to return to urban centres, which will help boost the condo market, according to Tal.
"Cites will be back, and that's why I believe the condo space will do extremely well," he said.
This comes as the national housing market continues to show signs of cooling, with home sales falling 8.4% month-over-month in June, marking the third straight month of slowdowns and a 25% decline in activity from March’s peak.
Tal explained to Nadal that the housing market is starting to slow down because of two things. "In the low-rise segment of the market, we have reached what I call a resistance level. Prices have risen way too quickly and people simply can't afford it," said Tal.
"The other issue is that people are blinded by low-interest rates and there's a sense of urgency to get into the market. So, if you wanted to buy something a year from now, you're buying it now. So, you have a situation in which we're borrowing activity from the future, and to an extent, the future has arrived and that's why were seeing the market slow down -- and that's a very healthy environment," said Tal.
Miles Nadal and BenjaminTal
Tal explained that as buyers continue to buy detached homes, as opposed to condos, they are buying properties that are substantially more expensive, which is driving up prices even higher.
"Given the fact that people are buying detached houses that are more expensive, you have more activity happening in the expensive segment of the market, and that's something that has lead to higher prices," said Tal.
As prices continue to rise, the average price for a home in Canada reached $679,051 in June, a 25.9% year-over-year increase from $539,182 a year ago. Vancouver currently has the highest prices with the average home selling for $1,199,984, up 14.3% $1,049,475 the year before, while the Greater Toronto Area trailed at $1,089,560, up 17% from $930,869 in June 2020.
However, Tal said the low-rise market is reaching a resistance level, and the only affordable channel for buyers is the condo segment.
"As cities open up, you will see the condo space take over and improve relative to low-rise," said Tal, who added, that, of course, the issue will be supply.
But supply isn't the only problem, as affordability remains a significant issue for Canadian homebuyers, especially those trying to buy in major markets.
"We have an affordability crisis in Toronto and Vancouver and we need a solution," said Tal, who explained that a solution to help this is by adding more rentals, particularly purpose built buildings. Though, Tal says that the government needs to provide more assistance to complete these projects.
"The new wave of renters will be families with kids. They want to deal with a company, not a landlord, and we need more purpose built in Toronto and Vancouver," added Tal.