“People are willing to commute two days a week to get more space”: We asked a realtor about recent market trends
Last month, the city experienced a real estate boom, owing to pent-up demand following months of lockdown. Tom Storey, a Royal LePage realtor with eight years of experience in the Toronto market, had a front-row seat to all of the craziness. The biggest trend he noticed from buyers: people want more square footage and big backyards after being cooped up during Covid-19.
What was the market like when the city started reopening?
April was pretty much silent, and it was the bottom of the market for every real estate asset class, from condos and freeholds to corporate real estate. Since April is normally the busiest time of year for real estate sales, I suspected that the spring market might just be pushed to the summer, and that’s exactly what happened.
The Leslieville and Danforth areas have been doing extremely well, in that houses have been selling for significantly more than their listing price. The same goes for the west end close to the core—Roncesvalles and the Junction. The reason is that these areas have a lot of semi-detached properties, which are the most affordable freehold option for buyers. A lot of people buying those properties had been living in a condo in the core and didn’t want to move too far outside of downtown.
What’s motivating people to buy and sell and right now?
The simple answer is that we had three to four months of pent-up demand that we’ve never seen before, during which people weren’t buying or selling because they were told not to go outside. But also, I think people have been quarantined in their homes and condos. They realize “I’m going nuts and need to move,” or “I’m on Zoom calls all day, I’m cooped up in a space that’s too small and I want a backyard.”
How has the pandemic affected what buyers are looking for and avoiding?
It seems like everyone wants a house right now, and there’s a good amount of people willing to leave the city. They don’t know if a second wave or another lockdown is going to happen, so having more space is a big theme. The request for outdoor space, especially a fenced-in yard for people with dogs, is so common that it’s practically a joke within our team.
People are also asking for levels. For many couples who have been on Zoom calls all day at home, doing that on the same floor as their spouses and kids can be very distracting. So if one family member can make their Zoom calls upstairs, while the other conducts theirs on the main floor, that’s a lot more manageable.
So people are buying houses or moving out of the city altogether?
Exactly. A lot of people have been told things like, “You’re not coming into the office for the rest of 2020, and when you come back in 2021, it’s going to be two days a week.” Many of those people are willing to commute for those two days a week for the sake of more space.
I sold a house for a couple in Little Portugal recently. They had three young kids and decided to move to Milton, to a much larger house, since they both work at the big banks, and were told they’re not coming back into the office this year. They decided to move closer to their families and just commute when they’re allowed to go back to their offices, especially since it’ll probably be for a few days a week for the foreseeable future.
Another couple, who bought a condo from us four years ago, ended up moving to Hamilton. They had pretty much the same thought as that Little Portugal couple. They’re willing to commute in the future, their families are in Hamilton, and right now they just need more space because they don’t know how long this is all going to last.
You mentioned that lots of people are buying freeholds in Toronto. Are you seeing an excess of condo listings, since so many people are trying to move up the property ladder?
It’s true that people are selling their condos and moving into houses, and it’s part of why areas like Leslieville and Roncesvalles are doing so well, but I wouldn’t say there’s an excess of condo listings, even though there is more inventory. It’s more that we’re moving into a more balanced market between buyers and sellers. It still somewhat favors sellers, but not to the extreme degree it has in the past five years.
Condos prices have shot up 51 percent in the past five years, and that kind of double-digit growth isn’t sustainable over a long period. What happened after mid-March is that no new freehold inventory came into the market, so it’s still very low supply, while the condo market nearly doubled in supply. That’s because while there’s typically a low inventory for freehold homes in Toronto, demand for houses was up, so we’re looking at more buyers for the same number of homes. And since people are either leaving the city or wanting more space, and there’s practically no immigration right now, demand for condos went down and the inventory is just piling up. The condo market has slowed for the first time in five years.
One client of mine was renting a condo on King West and realized that the rental market had gone down. Given what she was currently paying, she could have gotten the same place for about $200 less in her building. So first, she thought, Maybe I’ll just move to that unit because it’s cheaper. But then she thought, If I’m going to move anyways, I might as well see if I can afford to buy now. And she ended up buying a one-bedroom condo in the St. Lawrence market area. Typically, the place she bought would have been listed low on purpose and held in the offer stage, and probably would have gotten several offers and sold slightly higher. Whereas now condo sellers are pretty sure they’ll get their listing price because there’s less competition due to space, relocation, and immigration factors. When my client ran the numbers on her mortgage, maintenance fees, and taxes, it wasn’t that much higher than what she was paying for rent.
Smaller condos—that is, those under $800,000—are still selling really well. Those at the higher range are still selling, but they’re taking a longer time to sell and have fewer offers. If you buy a condo between $800,000 and $1 million—with your mortgage, your maintenance fees, and your taxes—your total carrying cost per month to own that property is very similar to buying a $1 million or $1.1 million house, because the house doesn’t have the guaranteed maintenance fees. For the house, you have to put down a bigger deposit, cause it’s a bigger purchase price, but your actual cost per month of living is similar.
People are saying, “Instead of buying this $850,000 two-bedroom condo, I’m going to buy the $1 million smaller house because it’s going to cost me the same per month.” The price of a condo is getting closer and closer to the price of a townhouse. When that happens, people are going to go, “Why don’t I just buy a house?” Especially now that everyone’s looking for more space.
What’s happening in the rental market?
There are way more listings than normal. I checked recently, and in the core of downtown, there were 6,000 rentals available. This time last year, there would be maybe 2,000.
There are a variety of factors here. First, the rental market already slowed down before COVID because of the new Airbnb rules that say people can only host short-term rentals in their principal residence. And mid-Covid, the city banned short term rentals altogether. They’re allowed again now, but those new laws contributed to the increase in inventory, since former Airbnbs moved to the long-term rental market.
The other obvious reason is that we’ve had practically no immigration for four and a half months. Also, all the universities or colleges that have condo buildings around them typically rent out a lot. But if those students don’t have to come back to class, why are they going to rent a place beside the university?
Do you think the trend of people moving up the property ladder is going to last?
Not necessarily. The housing market is going up in price, and it’s extremely competitive. I think there will come a time in the next six to eight months, if the housing prices keep moving up at this pace, where people will start thinking, I’m just going to buy a condo because it’s more affordable.
That said, everything is so uncertain right now, and if anyone tells you they know 100 percent what’s going to happen in the real estate market, they’re lying. We can look at the trends and make predictions—but that’s it.
Lastly, it’s amazing to me that the condo market hasn’t gone down in value, given the lack of immigration post-Covid. People say the prices have gone up because of foreign buyers, but right now, it’s local people buying homes and the prices are still going crazy. So whatever way you cut it, Toronto has a shortage of housing based on our population.