Toronto Real Estate 2020 Price Growth

Now we’re into the new year it seems a good time to reflect on where house prices are likely to end up in 2020. Over the course of 2019 Toronto house prices increased by 4% (Toronto Real Estate Board), but I would expect an increase in the region of 6-7% and even 8% this year.

Less supply and more demand

Why? Well if the start of the year is anything to go by, there’s a lack of properties being listed and significant demand for the ones that are available.

I’m hearing tales of properties with 30-40 offers and as much as 77 offers! – and that kind of competition is going to push prices up. Sometimes sellers price properties on the cheap to attract multiple offers, but it’s now happening on properties that seem fairly priced too.

Available data backs up this spike in demand. 

The Toronto Regional Real Estate Board found that there were 15.4% more transactions in January 2020 than the corresponding period last year across the Greater Toronto Area (GTA) while the amount of new listings is down 17.1%. The average price of GTA homes also rose by 12.3% to $839,363 in January, though you shouldn’t overreact to monthly price movements, which can fluctuate significantly.

Why supply is low

We’re at a time now where there is much stronger confidence in the market verses a year ago. Buyers have been waiting on the fence, unsure if they should buy or wait for a market crash. Now there’s a backlog of buyers and not enough listings to match the demand. I saw early signs of this late last year as condos in North York were starting to get scooped up as soon as they hit MLS. Demand outpaces the supply and now we’re very very short on new listings.

Many of the new developments coming to the market are condos. While some of these are suitable for first-time buyers, many of the larger developers are targeting investors from all over the world, rather than Torontonians looking to get on the ladder. Some of these same units are simply held vacant and aren’t rented or sold, limiting supply.

There’s a lack of luxury market listings coming to market too. I think some owners are sitting on these properties and waiting for them to appreciate in value, in the hope that they’ll rebound from the price falls we saw in 2017.

Renewed market confidence

People seem more confident in the market than two and a half years ago, when we saw prices fall above the $1.5m mark and there were worries that this could be the start of a crash. Despite the scary headlines nothing materialized and properties have continued to appreciate in value since that blip. The general feeling, for the time being, is the only way is up.

Hotspots

Sellers in Riverside and High Park area of Toronto in particular have been able to profit from a heavy seller’s market with their month’s of inventory below 1. Meanwhile condos have performed well for a very long time now, particularly in the downtown areas. There’s also strong competition near subway stations. Focusing on my heartland of North York, there’s plenty of demand along the Sheppard subway line.

Mortgage regulation

In 2018 homebuyers with a deposit of more than 20% started being subjected to a stress test, designed to make sure they can still afford to pay the mortgage if the Bank of Canada raises interest rates.

This slowed the market down for several months but, similarly to Vancouver, it soon picked up again. However it has prevented some people from being able to afford a mortgage, which must be a concern for those who are forced to pay ever-higher rents in the city.

Update: there are some changes coming to the stress test rules later this year. Will be posting another article explaining this in more detail. Stay tuned.

Buying together

To deal with affordability issues it’s increasingly common to buy with a partner or a friend, or even multiple friends in same rare cases. Purchasing a property on a single income is undoubtedly very difficult for your average earner.

For those who don’t have the luxury of teaming up with somebody else, my suggestion would be to buy with a mortgage outside the city. Either you could commute into Toronto, or you could rent it out to a tenant and sell it on once you’ve been paying the mortgage for a few years – hopefully profiting from capital appreciation over that period. The alternative is saving for a bigger down payment, but that can feel like an uphill task if house prices continue to rise.

Condos won’t rise in value forever

Condos have appreciated in value steadily for years now. 

The average price for a condo is now $630,000 mark (Toronto Real Estate Board) – though I wonder whether their growth will slow down sooner or later. My prediction is they will continue appreciating in value at a strong pace in 2020, but growth will become more sluggish come 2021/22.

The reason behind this is the gap between condos and the next cheapest property type (townhouses) are shrinking every year. For example, condos in the 416 increased 15% from a year ago while townhouses in the 416 actually decreased by 1.6%. This trend can’t continue forever.

It may be more lucrative therefore to buy a townhouse rather than a condo, of course depending on the area you’re looking at - every neighbourhood has its own specific dynamics.

Get the best deal possible

Whether you’re selling or buying, it’s worth hiring a professional to guide you through the process – whether that’s me or somebody else. As a seller you can negotiate a higher price this year while we’re in such low listing supply. This is really a great time to be a seller.

While as a buyer you’ll surely want to keep a keen eye on the market and be ready to act fast. With the current market condition and how competitive the Toronto real estate market is right now, you can benefit by purchasing a property sooner than later.

2020 is certainly set to be a very competitive year for the Toronto real estate market, and house prices should reflect that competition.