On a cold day back in mid-February, the Real Estate boards were reporting an increase in the prices of condominiums in the Greater Toronto Area. This was nothing new. After all, this is Toronto; one of the strongest Real Estate markets in the world. For years, prices have been steadily increasing and even after the downturns of 2009 and 2017, the Toronto market was still strong, particularly the condominium market. There seemed to be no end to the number of people who wanted to live in the downtown core, where shopping, restaurants and coffee shops are on every corner. Your work, friends and colleagues were just blocks away, perhaps a few subway stops or a short Uber ride. The next fabulous building was just being built, or a new release was just offered showcasing the lifestyle all downtown residents desired. This was THE place to be. Speculators, investors and buyers alike flocked to the city, with lifestyle dreams or investment goals. If you wanted to live there and could not buy the lifestyle, then you could rent it. As the prices to purchase a condominium had escalated, so had the rent. One-bedroom units were going for upwards of $2300 to $2500 per month. But no matter. You were downtown, living and working in a world class city. You did not need a car; public transit was right at your door. For now, renting was just as good as owning because you were at the centre of it all. Whether you were a Real Estate owner, speculator or investor, nothing made more sense than buying into the Toronto condominium market. Then the unthinkable happened. COVID19.
76% REDUCTION IN SALES!
Within 6 weeks, the Toronto Real Estate market dropped by 76%. Now, before we declare that the sky is falling, that number represents the number of sales and not the prices. This is misleading at best and most outlets report this staggering number to get headlines. To be clear, the prices have come down approximately 2 to 3 percent, but nothing earth-shattering…. yet! There are still people living the dream and Uber Eats is delivering food from restaurants that have been able to stay open. You can get a seat on public transit because people are staying home. Businesses now have employees either working from home or have closed altogether and laid people off. The amenities in these 5-star buildings are closed and social distancing is mandatory. Still, leading the life? Who would have thought that the world would ever face a threat like COVID19? This pandemic has upended everyone’s life in ways we could never have imagined and for real estate, it begs the question: Will it change people’s perspective on how and, more importantly, WHERE they should live?
In 2 short months, we have watched the entire world pivot. Technology has become the driving force in sustaining businesses. Online courses, which were strongly opposed just a few short months ago, are now being embraced with many students continuing their courses and finalizing exams with the aid of virtual classes held by their educators. If you are following the rules, you are only going out for necessities and keeping your distance from your neighbors. If you are fortunate enough to be working from home, you are trying to set up your work place so that you can be productive, having never given THAT a thought when you moved into your awesome 500 square foot condo on the 50th floor with no balcony. After all, you only needed to sleep and occasionally eat there. That little restaurant around the corner where you got your daily breakfast sandwich and coffee to go is now closed, perhaps for good.
Life has completely changed, and while we yearn and hope for a rapid return to normal, questions about the future remain unanswered. What will the new normal look like? More importantly, will living at the heart of a large city like Toronto continue to be as appealing as it once was?
I was asked a few months ago, “Where is the next best place to buy Real Estate?”. Everyone expected me to give them a Toronto condominium address or perhaps highlight some of the boutique neighborhoods in the GTA. When I gave my answer, people thought I was crazy. The idea that the Toronto market would not be the best place to invest had to be absurd. The lifestyle that the core offers is second to none. Toronto is a vibrant city with employment, shopping, parks, restaurants and bars, entertainment venues, transit and so much more right at your doorstep. While all cities are crowded, Toronto being no exception, it remains manageable and above all, one of the safer cities in the world. I have no doubt that with time, a level of normalcy will return, but for many, that lifestyle vision of living in the city may begin to look more like a nightmare after COVID19.
Think about it. The idea of being in such close quarters with so many people. Taking transit daily with the masses, lining up with everyone side by side for your cappuccino. Using the elevator every day with hundreds of other residents. This virus has changed more than our lives; for many it will change their entire attitude and value system. Some may be less willing to go into multiple offers to obtain their little slice of the sky. Certain aspects of city life may look a lot less appealing to those who once desired it. Many have been affected by loss, fear, unemployment and uncertainty about the future, and are feeling more fragile than ever. They may begin to see value in having something, anything, that is more solid and stable.
So what was the answer to that question? Where is the next best place to buy real estate? The answer is the outer markets. Yes. The suburbs! Even the suburbs of the suburbs…the outer markets. In the last several weeks as the Toronto market has started to falter, the outer markets have gained strength. Prices are going up in the outer Ontario markets and showing no signs of decline. Why is that? Is it the reduced interest rates? After all, the bank of Canada rate is as low as it has been in years and the variable mortgage rate is extremely attractive. The fixed-rate leaves something to be desired right now because the banks are throwing in the risk factor and they want to protect profits in case of default. Perhaps it is the affordability of the outer markets? Detached homes ranging from $200k to $600k will give you 3 to 4 bedrooms, multiple bathrooms AND a back yard. However, today there are additional reasons why the outer markets are gaining in their desirability. Less density. More space. You won’t need to use an elevator that hundreds of people have contaminated. You can go for a walk in your neighborhood without actually bumping into people or stepping off the sidewalk into the street. We’ve suddenly proven that it is, in fact, possible to work from home effectively so commuting becomes a non-issue if you only have to head into the city once in a while. If you are working from your home, you have space to do so, and will not feel like you are playing an advanced game of Twister while trying to get your work done. The outer markets have so much to offer and in these changing times, people are redefining what is truly important in their lives.
The world has changed, and I am certain it will not be the same when we get through this crisis. This pandemic proves more than ever that it is of paramount importance to have a roof over our heads, and it must be one we feel safe in. Technology is moving faster today than ever before and will redefine the workplace and how we interact with colleagues and customers. The education system will certainly be retooled to both expand & improve the delivery of education, but also to accommodate any potential future disruptions (sadly, no one believes this is a one and done scenario). Employers will start looking at more options for remote employees and will certainly re-evaluate the need for everyone to go into the workplace every day.
So, will this life-altering event that has changed virtually everything in our lives, also profoundly change how people view Real Estate? Will it change how people assess their needs and make decisions about how and where they live? Of course, it will. If anything, I think it will make people appreciate homeownership more than ever. The simple fact is, you cannot live in your stock portfolio. While many will still be drawn to the downtown core, many more will reassess that lifestyle. People have been vastly affected by this pandemic, and for some, it will mean moving out of the crowded spaces where racking and stacking for convenience is the norm. I do not believe the GTA condominium market will crash, nor do I want it to. I believe there will always be a group that must live in the center, but I also believe that the experience of COVID19 will cause some people to reconsider the mindset that surrounds that lifestyle. Toronto will always be one of the top cities to live in the world. Canada’s immigration will probably ramp up once the world can move freely again, and the inventory shortage in Toronto will remain. But I also believe there will be shift in the mindset of many. Instead of concrete and strangers, you look out at your own property, your own safe haven. You know most of your neighbours and look out for each other. Perhaps that seemingly old-fashioned dream of owning a detached home in the suburbs with a yard (and a picket fence and a dog), will enjoy a renaissance, and become the new lifestyle dream for many. Has COVID19 changed Real Estate? Not per se, but it has certainly changed how all of us think about “home”. At its heart, real estate means home, and home has become the most important place to be.
Todd C. Slater is a special contributor to The Dales Report. He is the President of The Simple Investor and host of the #1 Real Estate Radio Show on @newstalk1010. Todd’s The Simple Investor features can be seen every weekend.