5 Lessons From the Craziest Year Ever in Toronto Real Estate
The last 12 months have been probably the craziest year in Toronto real estate history. So many highs and lows. Winners and losers. Unbelievable records set both in favour of the investor – and against. Andrew breaks down 5 lessons that he has learned from this time and what we as investors can take away from the pandemic so far.
Highlights From This Episode
Recap of the craziest things we saw in the real estate market in 2020 (2:21)
Real estate is not for the weak (8:56)
Always hold (9:53)
The fundamentals of the Toronto market (12:47)
Watch the pendulum (16:21)
Buyers are not rational (20:12)
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Read This Episode’s Transcript
Andrew la Fleur: On today's episode, we're going to be talking about five lessons from the craziest 12 months in Toronto real estate ever. Stay tuned.
Speaker 2: Welcome to the True Condos Podcast with Andrew la Fleur, the place to get the truth on the Toronto condo market and condo investing in Toronto.
Andrew la Fleur: Hi, there. Welcome back to the show. Thanks again for tuning in. As always, your host here, Andrew la Fleur, bringing you the True Condos Podcast since 2014. I appreciate your time. Thank you so much for supporting this show and tuning in and listening to this episode and every episode. Today's episode, I want to talk to you about the five lessons that we can take from the last 12 months. We are now 12 months into this crazy global pandemic, COVID-19 crisis, whatever we're calling it now, and it's just been an absolute wild ride, so I thought it's a good time to take a look back in some of the learnings. It's just been, like I said, the craziest 12 months of real estate ever. The ups, the downs, the highs, the lows, the ecstasy, the tears. We've seen it all this past year, haven't we? It's been pretty wild, so let's take a moment and look back. Well, we're still in the middle of it, but let's see what we've learned so far during this crazy 12 months that we've just had.
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Yeah, let's jump right into the lessons from the craziest 12 months in Toronto real estate ever. First, let's recap. What are some of the crazy things we've seen? Condo market, first of all, well, condo market, we went from the hottest segment of the market right before COVID dropped in February, early March 2020, condo segment was the hottest segment of the market. Everything was going over asking, prices were at all-time highs, and it was looking like it was going to just be an absolutely incredible year for condos, particularly the whole market, yes, but condos in particular were the hottest segment of the market a year ago.
Within 30 days, the condo segment went from the hottest piece of the real estate world to the coldest, so by the time we had gotten into April, condos, especially downtown condos, were basically considered radioactive and nobody wanted to touch them and everyone was scared of getting COVID in an elevator, and to some extent, that is still true today, a year later, although that is certainly worn off considerably and more and more people every day are really getting beyond that and getting past that and the market is obviously red-hot once again, where we still haven't recovered the losses that we had, we still haven't quite recovered them yet, but we will be very, very soon. Condo prices overall dropped about 10% on average. Some condo buildings, some areas drop more than 10%, some as much as, I want to say, 15, 20% in some buildings, which is incredible.
Houses. Let's talk about houses over this crazy year. What did we see there in the housing market? Of course, well, it's no secret that overall houses have done very, very, very well through COVID. There was a brief period in April there, right till around the first week of May 2020. If you happened to buy a house in that time period, congrats to you, you've made a mint on that because that was the low point certainly there, but things just took off like a rocket after the calendar turned to May and just seemed to have accelerate more and more and more.
Particular of note, we smashed through the record prices that we saw in 2017. The market, of course, in low rise across the GTA took off in 2017 and crashed when the Fair Housing Plan came out at that point in time and the foreign buyer tax and everything else. That market crashed in spring 2017 and we've been climbing back up and we finally hit it and passed it this year, so that was interesting.
Also of note, these faraway places around the GTA, surrounding the GTA, your Oshawas, your Barries, your Hamiltons, your Niagras, your Bowmanvilles, your Peterboroughs, your Londons, your Kitcheners, they saw record prices as more and more people were moving out of Toronto. Even your Prince Edward Counties, people were moving out of Toronto, out of the city, and into these areas for working-from-home purposes and otherwise, Callingwood and places like that, so these areas in particular, which normally are super sleepy and super low appreciation compared to Toronto, saw astronomical appreciation over the past year. Crazy.
Let's talk about cottages. I want to touch on that because cottage market all around Ontario just also took off like bananas and had the biggest, best year ever, by far. You're looking around cottage country, if you happen to be in that market right now, I mean, if you bought, again, 12 months ago, congrats to you because you are up massively from a year ago. If you're looking at buying cottage today in 2021, everything is bidding wars. Everything is way over asking. I mean, bidding wars and cottages were pretty much non-existent. Even in hot years, it wasn't really a thing.
Now, also, there was no winter cottage market. Nobody bought a cottage in the winter. Now, everything's covered in snow. You can't even see what you're buying. Now, completely not the case. Cottages are being listed in January, February, March here covered in snow. You can't see anything. The lake is frozen. You don't know what's under there. People are paying, it goes up for 1.5 and sells for two million the next day. Just a decent lot anywhere in cottage country, two hours from Toronto, you're looking at a minimum million bucks just for a lot now, so it's just gone absolutely crazy in cottage country and that looks like it's going to continue as people are saying, "Well, I'm probably not going anywhere again this summer, this year. What am I going to do? What are we doing with the kids? We're not going on any trips, we're not getting in an airplane probably this year," so cottages have been a major recipient of this craziness.
Then finally, we'll touch on rents, what happened in the rental market, of course. It's a big story for us as condo investors, a massive drop downtown in particular, 30% price drop. In some buildings, we've seen as much as maybe 40% rental price drop. Never could we have imagined this type of scenario. Nobody could have predicted such a thing to happen, but interestingly, the downtown hit so hard and you're seeing this strange phenomenon where it's places like Kitchener you're getting higher rents or equal or higher rents than downtown Toronto. It just boggles the mind to think what we're witnessing here.
We know it's going to turn around. We know it's going to bounce back. We know it's going to bounce back hard whenever it does. We also know that what's going to trigger the bounceback, to get bodies back downtown, in particular, is two simple things: We need the offices to be open for people to work and we need the classrooms, the higher education university and colleges. We need the classrooms open, students in the classrooms, and workers in the offices. If we get those two things, then we know the rental market is going to take off. Of course, we need immigration as well. That's a given, too, but until people are working in offices and working in classrooms, studying in classrooms, the rental market, unfortunately, downtown is going to be waiting for that to get back on track.
What are the lessons, the five lessons that I take from the year so far? Number one is real estate is not for the weak. Real estate is not for the weak, so if you're an investor and you've survived this year with your head screwed on straight, congrats to you. The major bumps, I think, are over and things are looking better and better each day as we get closer to getting out of this whole thing. But yeah, real estate is not for the weak. There's lots of ups and downs and many things that are out of your control, you cannot predict, so once again, it favors those who have a strong constitution who are willing to take on risk and who understand, most importantly, that real estate is a long-term game. It's not something to be getting into willy-nilly here or thinking just in terms of one year, two years down the road. You got to think much longer.
Number two: Always hold. The answer is always hold. What I mean by that is I've always, generally speaking, had the philosophy and taught the philosophy to my clients, people on this podcast, people getting my emails and videos and articles over the years, buy and hold, buy and hold. I'm not a flipper. I've never been a flipper, although there's nothing wrong with flipping, it's just I don't think that that is the best way to play the real estate game, and ultimately, to grow your wealth the most, the answer is always hold, hold, hold, hold.
There were so many points over the last year and so many stories of people who didn't hold, who didn't stay the course, who sold their condo in October, November of 2020, and now it's worth 50, a hundred thousand more a few months later, who sold their house in April 2020, and then now, it's worth 200, $400,000 more. Somebody, an investor who saw the rents on their condo drop 20, 30% and said, "Ugh, this is terrible. I'm getting out of this thing because I'm losing a hundred bucks a month," when meanwhile, if they sold at a price and they lost 50,000 or a hundred thousand dollars when they were worried about a hundred bucks a month, to the cottage owners out there who said, "Oh, this cottage thing is pain in the butt. I don't know why I'm holding onto this property. We don't use it enough. It just sits there. It's a drag on me," whatever, and they dump that property, and again, it's up 50 or a hundred thousand.
Again, the answer is always buy and hold, buy and hold. Real estate will always favor those who take the long-term approach. It will always be weighted in favor of those who are patient and who understand is a long-term game, who understand there's always going to be highs and lows, there'll be ups and downs. There'll be bumps along the road and you need to know that and be prepared for that and remember that when times are good, that there's going to be times down the road that times will be bad. Times are good right now, things are looking up right now. Particularly for us as condo investors, it looks like most of the storm is behind us and the market is picking up significant steam and things will probably be good for the rest of the year, most likely, but there'll be years ahead where things are slow. Again, it's all about riding out those highs and lows all along the journey and that is where the most wealth is going to be created for those who are able to hold, hold, hold, hold for long periods of time.
Number three: The Toronto fundamentals are actually true. We talk so much on this podcast and as an industry in general here in Toronto about the fundamentals of the Toronto market and how we are a growing city, we're an economically strong city, we are a global city, we are a city of immigrants, we are a city that is surrounded by a Greenbelt with limited supply of developable land and a shrinking supply. We are, in effect, an island here in the GTA and the Greater Golden Horseshoe Area because of the Greenbelt and we're seeing Toronto is one of the fastest, if not the fastest-growing big city in terms of number of people coming into our city every single year for many years, and probably that's only going to accelerate and get moreso in the years ahead.
Our economy, we're the financial center of our country and increasingly becoming a financial center just in the world in general. We have a stable and healthy government and society and free society. There are just so many reasons to be optimistic about the future of Toronto and about investing in real estate, just in a broad, general sense specifically in our city compared to any other city in North America. The fundamentals of Toronto are actually true and why I'm saying that is because even through this crazy, horrible storm that we've been through, I think back to so many people on Twitter and whatnot and the talking heads and pundits in the very early stages of COVID back in March and April and people were saying things like, "Well, it's looking really bad for Toronto real estate. Nobody knows what's going to happen, but one thing we know for sure is Toronto real estate can survive this storm, then it can survive anything."
Those kinds of statements, a lot of people were saying things like that at the early days, because there was a lot of pessimism, and certainly, we thought that the market was going to tank. We thought that everything, the sky was falling and everything, and it was looking that way, but that completely did not happen. Even though there's no immigration pretty much happening at all to our city, which is one of the core things, one of the pillars that makes our region such a great place to invest. Even though that didn't happen at all, the market still took off and did amazingly well over this past year. Sure, low interest rates and other factors were part of it, but even in the face of huge rising unemployment and no immigration, borders closed and everything else, the market still took off.
I think it just, again, underpins the idea that our fundamentals here are very strong. There's a lot of money in this region and area. Again, there's going to be highs and lows in our market for the next five, 10, 20 years, forever, but fundamentally long-term, our prospects are looking very, very good, and we can be very confident as investors if we're buying for the long-term with a five to 10-year horizon in mind. With anything that you're buying, you're most likely going to do very well with that investment, if you're patient, and if you're smart with what you're buying.
Number four is watch the pendulum. Watch the pendulum. The pendulum is a concept that I talk a lot about on this podcast and with my clients and it's this idea that the real estate is cyclical, that there's different, there's yin and yang, it's back and forth within the real estate markets between different things. What I mean by that specifically is I always picture just a visual of this pendulum that swings back and forth, right, in our market. The most obvious one is the pendulum between condos and houses. When the pendulum swings, as it has so far, towards houses over the last year, so the housing market has gotten so much attention and eyeballs and money pouring into that segment of the real estate market, houses, so the houses go up 30%. What happens to the other side of the equation, the condo market? It becomes relatively cheaper and cheaper compared to houses, and then therefore, what happens? Well, the pendulum naturally will hit a point, a peak, and it will stop and it will begin to swing back the other way towards the other segment.
Same thing happens between buying and renting in the market. When buying becomes very expensive, which it has been, which it has in the last year, then renting will become more attractive, so more people will be priced out of buying something, and therefore, more people turn to renting, which will drive up rental prices and the rental market in general and so on.
You look at resale versus pre-construction. We've seen the same thing with the condo market, so the resale market has suddenly become very attractive and it's picking up steam, picking up steam, and it's gaining and gaining price, so as that happens, then the pre-construction market starts to look more and more attractive as the price gap between them narrows and more and more buyers will say, "Hmm, why would I buy this resale when I can go over and buy pre-construction for just a tiny bit more, and it's not going to be built for four years?" and so the pendulum swings back and forth between pre-construction and resale and so on.
Yeah, 905 versus 416, out of the city versus in the city, small towns versus big cities. The pendulum swings back and forth. When you see one particular segment of the market gaining massive steam, massive appeal, that's a time to not necessarily look at that market, but say, "Okay, well, that has already happened. What will happen next? Where is the pendulum going to go to next?" and if you're able to jump in and take and buy in that segment, you're getting in before the momentum happens, right?
Again, what I've been telling everybody for the last two, three months is this is not rocket science. You can figure this out. We've seen this, the pattern has been established for a long, long time. The housing market went up 30% and all buyers flooded into the housing market up 30%. Meanwhile, the downtown condo market prices actually went down five to 10%. Where do you think the opportunity is to buy right now? Is it to buy where the price is you're paying 30% more than you did a year ago, or is it to buy where the price is 10% less than it was a year ago? Hmm. It's pretty simple. Yeah, so the opportunity and the evidence is very strong that the resale condo market is going to fly this year because of that pendulum effect, so always watch the pendulum. A very simple analogy, but hopefully that's helpful just as you think about the real estate market and you think where are the opportunities today, tomorrow, whenever you're looking at a market.
Number five lesson taken from the last 12 months, the craziest 12 months of real estate, number five, the fifth and final one that I want to talk about today is just that buyers are not rational, that we as people, we are the things that move the real estate market, we are the buyers, the sellers, the renters, the landlords, we people drive the markets and people make decisions that drive the markets and our cumulative decisions together is what dictates where the market goes. People are not rational and people do not make rational decisions. Most of the time, I would say, if not all the time, the movement of a market does not make rational sense, right?
There's so many examples of that we've seen, again, over the past year from people being irrationally afraid of living in a building with an elevator because they think that they're literally going to catch a disease and die. Sure, that could happen, and perhaps, maybe even sadly it did happen to someone out there, but you're talking about, what, one in ...? The percentage of this sort of a thing happening is infinitesimally small, and yet it's directing and dictating the decisions of people en masse moving away from the downtown core and out into the burbs.
That's just one example. If you just go down the list, the behavior in the cottage market, people just irrationally throwing hundreds of thousands of dollars extra at properties in cottage country just because they won't be able to go to Europe this summer or whatever. It goes on and on and on and just the fact that nothing, nothing, nothing played out the way that we thought it might play out when we looked at the situation at the beginning of this and when the pundits and the experts and the talking heads looked at everything. Nothing played out the way that we thought it might.
Again, to me, it's just a lesson, continuing lesson that these markets are not rational, that people are generally not rational when it comes to these things, so when you're looking at markets and opportunities, just always remember that and say that the most likely thing that you think would happen is probably not the thing that's going to happen and when you hear somebody say something to you that sounds the craziest and the least likely to happen, well, that should be a little signal to you that perhaps that's actually the thing that's going to happen.
There you go. There you have it. I hope you found this episode interesting, useful, informative, valuable in some way, and look forward to continuing to bring you this podcast in 2021 as we continue this wild and wacky journey through this pandemic, and hopefully, it will be in our rear-view mirror soon. I hope that you listening out there right now are doing well. I hope that you're healthy. I hope that you're taking care of your health and your mental and physical health and your family's mental and physical health first and foremost, and secondly, I hope that your investments in real estate are profitable and continuing to grow. I hope that I can be a part of that journey with you in some way here, whether it's working directly with you, or whether it's just simply you listen to this podcast and getting some value from it. Okay. Until next time, hope you have a great week and happy investing. Talk soon.
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