How Will the Second Wave of the Pandemic Affect Toronto Real Estate?
As the numbers continue to rise in the Greater Toronto Area during the second wave of the COVID-19 pandemic, the real estate industry is seeing a tale of two cities.
On one hand, the hunger for homes with more space, especially outdoor space, continues to be strong. On the other, some condo investors are sweating as rents continue to drop precipitously.
The question is, how will second wave of the pandemic this fall and winter affect people’s desire and ability to buy homes?
Although open houses were allowed under Phase Three of Ontario’s re-opening plan, the Toronto Regional Real Estate Board “strongly recommended caution,” says TRREB’s president Lisa Patel.
The organization offers guidance to area real estate professionals, as well as compiles data on listings.
While individual brokerages make their own decisions on issues such as whether to hold open houses, most have maintained practices set into place in the spring. “The first thing that comes to mind on a daily basis is that we are essential (workers) and … we must make sure everyone is safe,” Patel says.
Liability is “always going to be at the back of the mind,” for professionals as they make decisions about keeping people safe, she adds.
Davelle Morrison, a real-estate broker at Bosley Real Estate Ltd. Brokerage, says the rising numbers in the GTA have not changed how homes change hands.
“We have been working with pretty strict protocols … since March, April,” says Morrison. This includes virtual tours, masks and sanitizer when visiting a property, not touching anything in the home or using the bathroom and appointment-only showings.
Morrison says the rising numbers of the second wave do not seem to have spooked prospective buyers, as most seem to see this as “our way of life right now.”
TRREB figures show that even after a summer on fire, the overall real estate market continues to be strong. Even the condo segment, while having bigger problems than the single-family one, continues to see momentum and price gains, Patel says.
The second wave is really affecting parts of the condo segment, says Ron Butler, founder of Butler Mortgage.
“No tourism, weddings, sporting events to stimulate Airbnb rentals,” says Butler, as well as a sharp drop in foreign students and immigrants affects not only condos bought to rent out, but may have effects further down the line, too. For instance, immigrants who rent when they first arrive, eventually aim to own a property.
Still, he sees some of this as short-term. “The full quota of immigrants is being processed; it’s just a question of getting them here.”
Even within the condo market, it’s a matter of when investors bought, Butler says.
“If they bought 10 years ago for about $150,000 … their mortgage payments are small” and they can ride out even a few years of lower rent. “People who bought resale 2-3 years ago … may be feeling the heat”, not only because of dropping rents but also rising condo fees and taxes.
“They could sell, they could drop their rent,” and both of these actions exacerbate the downward pressure on prices.
Rental Picture Dim
The rental picture looks pretty much as it did during the first wave, says Tony Irwin, president and CEO of the Federation of Rental-housing providers of Ontario.
The safety protocols put in place earlier, such as sanitizing common areas, requiring masks in buildings, and virtual viewings of vacant apartments remain, with many buildings never having opened up amenity spaces after closing them in the spring, he says.
But the increase in vacancies, and the accompanying drop in rents across the GTA, has had an effect on the rental segment, Irwin says. “We are hearing about … landlords decreasing rents or offering incentives to fill vacant units,” especially in certain areas or buildings that had heavy student populations or where tenants had to leave.
However, the fact that some landlords are not getting rent from a small percentage of tenants, and the fact that Ontario has passed legislation to freeze rent in 2021 (at 2020 levels), may especially affect smaller landlords, he says. And with government assistance changing as the pandemic drags on, landlords “can only lower rents for so long without cracks in the system appearing,” Irwin says.
For larger landlords, there have been discussions about how to balance reduced income with the costs associated with running buildings, and some members of FRPO are talking about, for instance, delaying some improvements, he says.
And builders “are taking a look at whether plans (to build) still make sense,” Irwin says.
But longer-term, once life normalizes and the economy picks up again and immigration increases to the levels Canada, and especially the Toronto area, estimates it needs, Irwin believes the supply crunch will return.
Shorter term, though, there are fears of another lockdown.
As the number of new COVID-19 cases in Ontario climb higher, people are wondering whether there will be another lockdown. This is driving some Toronto real estate buyers to try and get in under the wire, says Morrison.
With condos, people are looking for work-from-home space, or balconies. Or she is seeing buyers wanting to upsize.
On the other hand, not as many sellers are in a hurry.
Owner-occupied condo owners can just sit on their property, Butler says.
And because of the number of COVID cases in long-term-care homes, some older people are choosing not to sell, or people are thinking multi-generationally, Morrison says.
After “the busiest three months of end-user purchases of homes in several years,” Butler has seen a cooling down in the past 10 days. The fall and especially the winter is traditionally slower for Toronto real estate, he says, and what happens next depends on whether there is an effective vaccine in the spring.
“If borders stay closed, there is a third or fourth wave, it will affect the real-estate market, even freehold,” he says. “Even if there is a vaccine, things aren’t going to go back to normal in 10 minutes,” he cautions.