4 Reasons Why the Condo Market Will Rebound in 2021

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. If you ever want to get ahold of me, you can do so, andrew@truecondos.com. You can call me or text me at (416) 371-2333. Hope you're having a great start to the year so far in 2021. We are about one month into this year and wanted to check in on the state of the condo market, specifically the resale condo market in downtown Toronto, which again is what we have been tracking here on this podcast over the last five, six years that this podcast has been around. Actually, I think even longer than that now. I've lost track of time. Thanks for being here and being part of this show, whether it's your first time listening in, or whether you have listened to every single episode. Thank you very much for being here.

Andrew la Fleur: I want to talk about the state of the condo market, give you some of my thoughts on what's happening there right now, a lot of interesting things for sure happening. We are coming up soon on one year of this new reality of a global pandemic, COVID-19 crisis, whatever you want to call it. It's just been a wild year and been lots of ups and downs and with respect to the real estate market, certainly right now, a lot more ups than downs happening. Probably the thing that's getting the most noise, the most attention in the media and just people on the street in general, talking about the real estate market, of course, is the low-rise market. Our houses, particularly in the 905, we're seeing just incredible historic level price appreciation in many pockets and towns and cities around the GTA: Oshawa, Markhams, Bramptons, Burlington. We're seeing some crazy numbers where prices in January, in some cases, are up 20, even 30% from what prices were like three months ago, I want to say, in the fall, in November. It's just wild.

Andrew la Fleur: We're seeing houses, particularly, it seems the cheaper the markets, the bigger the jump that we're seeing, right? Flight to affordability, the theme that we talk about all the time in this podcast. Wherever the water is lowest, it has the most potential to go up at times like this, it seems, so markets like Oshawa and Durham region as a whole, which always have been the most affordable part of the GTA, and Oshawa, probably, in terms of average prices, probably the lowest average prices of anywhere in the GTA for pretty much forever, we're seeing houses in Oshawa that were 600K in November, and maybe they were 500K at the start of COVID, and now suddenly, they're like 800K in early 2021.

Andrew la Fleur: Absolutely wild, crazy, huge price increases. We haven't seen these sort of numbers, really, ever. The closest was maybe early 2017. We started to see some appreciation year over year in the 20, 25% range, and 30%, maybe it touched on, but now we're seeing, in some cases, over 30% here, so it's just wild. Some of these numbers that we're seeing across the GTA in the low-rise market and a lot of people naturally are talking about that and we're hearing townhouses in Mississauga getting... Yeah, there was one the other week got 70 offers on it. 30, 40, 50 offers is not uncommon all across the GTA just about every night. It's just wild. The supply-and-demand equation is just completely out of whack when it comes to the low-rise market.

Andrew la Fleur: Why is that happening? Of course, backyards. Everybody wants a backyard. People in general want to not be in high-rise buildings with elevators. That's the big trend. That's nothing new. That's been happening since COVID hit. There's definitely been a overall theme, overall shift towards that. But we're starting to see a return. On the same hand, we're starting to hear return to condos, we're starting to see new life in condos, we're starting to see a lot of positive signs in the condo space, and that's what I want to mostly focus on in this episode here today.

Andrew la Fleur: The condo market probably bottomed out, in case you didn't know, or you weren't aware, the condo market was struggling hard during COVID for, again, just people did not want to be in high-rise buildings, and particularly, the downtown core where a lot of offices shut down, people left the downtown core, so the condo market is no secret, it's no surprise. I'm sure as you're listening, I'm not telling you anything you didn't know, condo market's been struggling downtown since COVID and the market probably bottomed out in November, it looks like.

Andrew la Fleur: If we look at the numbers and when we look at the supply-and-demand equation was most out of whack, where we saw this absolute surge in inventory between August, September, October, and the first half of November, the inventory levels just surged and we had way too much supply everywhere, so listings were sitting, prices were falling. Buyer's market galore, especially downtown, and especially for smaller units. The smaller the unit, the fewer the buyers there were out there, which was just a complete 180 on the trend that we have seen and built our thesis of investing on over the last 10 years. This global pandemic really turned everything on its head. For again, about four months there, things were just completely upside down.

Andrew la Fleur: What happened in the end of November? Well, nobody knows for sure exactly what happened, but the market definitely took a turn at some point at the end of November, it looks like. December, the condo market really started to heat up and that was when people really started to say, "You know what? This is not just a fluke, things have definitely shifted here," and now, as we're at the end of January a couple months later, there's no doubt on anybody's mind that the condo market has shifted. The numbers don't lie. The inventory situation's dramatically changed. The inventory levels coming from all-time highs have now come down massively from something like, three, 4,000 units available to something like 1500 units available, roughly, so there's been a massive shift in that.

Andrew la Fleur: The buyer demand is growing, and so overall, we're seeing inventory levels are going down every day, so the amount of supply on the market today is less than it was yesterday, the day before, and so on. It's just wild. As a result, it's gone from a buyer's market, believe it or not, to a seller's market. We seem to just zip right past the balanced market and we're straight into seller's market. The stats officially for TREB are going to come out in a few days for the month of January, but looking at the numbers and where they're at, it's very clear that it's now a seller's market and some of those numbers, I think when people see them, the headlines, it's going to be quite shocking how things have shifted. Probably still the focus of the media attention is going to remain on the low-rise market because that's just ultra white-hot territory, but for us as condo investors, paying attention to the condo space, of course, it's good news to see that we're back to a seller's market in the condo space, especially downtown.

Andrew la Fleur: Prices have still not started rising up. Certainly, the prices are still quite a bit below where they were pre-COVID. January, February, go back in time a year ago, January, February, before COVID hit of 2020, the condo market was red-hot and prices were rising rapidly at that time. Most properties downtown were getting multiple offers, it wasn't uncommon to have five to 10 offers on condos, and prices were going up rapidly a year ago at this time. COVID hit, prices dropped. Prices came down 10 to 15% from those peaks of early 2020, so prices are still not back to where they were and I don't suspect they're going to be back to pre-COVID levels overnight. It's not going to happen overnight. There's going to be some time, so even though it is a seller's market, we've seen this story before over the years, most notably, probably back in 2016.

Andrew la Fleur: 2013 to 2016, the condo market was pretty flat. It was sort of a borderline buyer's market for a few years there and we saw relatively flat prices, not too much price increases over those years, and then 2016, the market started to heat up and we saw similar to what's happening today in the market where the sales-to-listing ratio, the supply-and-demand equation, shifted dramatically into seller's favor, but prices didn't shoot up right away. It still took a few months for people to really notice that prices were increasing. In other words, on the street, what that means is a condo might get three or four offers, which is happening today again, but buyers, they still feel like they have the upper hand, even though they don't, so they're not throwing 20, 30, 40K extra on their offers, they're still being conservative and playing it safe and there's a lot of just people out there still looking for deals and still thinking it's a buyer's market, even though it's not.

Andrew la Fleur: Sellers haven't really caught on to the power they have, either. Sellers are still not thinking, "Well, should I accept this offer?" Or, "Wow, I just got four offers. Maybe I should wait a month. If I sell in a month later, I might actually get more." Sellers are not thinking that way yet, so we're still in this time period where there's an opportunity, particularly if you're a first-time buyer looking to get into the market, I would say this is a great opportunity still for you to do that and get a price that's below the peak pricing of before COVID.

Andrew la Fleur: With that being said, I think by June, I think once we're past this, once we get through this spring market, which we haven't gotten into yet, prices are going to be very, very different. They're going to be much higher than they are right now. Are they going to be at the pre-COVID peak levels? I don't know. It wouldn't surprise me if they did get back there, looking at the velocity of how quickly this thing is turned around and how quickly things have changed, but it might not get all the way back there. But safe to say, at some point in 2021, if this trend continues, it will be back there, because like I said, it's definitely a seller's market and multiple offers are going to be driving prices up.

Andrew la Fleur: To the crux of this and going back to the title of this episode, The Four Reasons Why the Market is Picking Up, what is driving this, the four reasons? Well, number one is interest rates. Interest rates are, of course, at an all-time low. There's been a huge drop in interest rates since COVID hit and you can now get a mortgage, principal residence, especially. If you're a first-time buyer, again, out there, the carrying cost of buying an average downtown condo today is probably on average about 25% less. The monthly carrying cost to buy the average downtown condo today's probably about 25% less than it was 12 months ago, so the prices of condos have come down, but also, the interest rates have come down, so your monthly carrying cost is much lower.

Andrew la Fleur: That naturally, of course, is going to drive more demand. When the price of something is going down, not just the price you're paying, what the price of the money, the cost of money, mortgage rates have come down, so again, it's just absolutely ridiculous. You're getting mortgages for less than inflation. It's like free money. You're 1.5% HSBC, 0.99% variable mortgages for principal residence buyers, whereas a year ago, interest rates were in the high twos, so the interest rates have come down dramatically, the carrying costs of condos have come down dramatically, so that is really starting to take effect and we're starting to see that drive buyer activity.

Andrew la Fleur: The second thing is house prices. Why are condos so hot all of a sudden? Well, condos are hot because house prices have gone up so much, so the gap between the average house and the average condo has grown significantly, so naturally, as I talked about many, many times on this podcast over the years, the pendulum swings back and forth through different segments of the housing market between condos and low-rise, between resale and pre-construction, between renting and buying. The pendulum swings back and forth depending on what economic conditions are out there, and so the pendulum swung way over in favor of low-rise during COVID, and now that prices have gone up so much on low-rise and condo prices have actually gone down, the gap between the two is huge, so that's naturally going to drive more and more buyers towards condos and away from houses, so we're seeing that happening for sure on the streets right now.

Andrew la Fleur: The third reason is natural demand. This is just we're still playing catch-up from the first, call it three, four months of COVID when demand fell off a cliff, especially that first month where normally April, busy spring market, nobody was buying, the sales numbers just fell off a cliff, so we're still playing catch-up to just reach sort of a normal level of transactions and people buying and selling in the market, so that natural demand cycle is now we had the low and now we're on the bounce back, so there's a lot of activity in the market just from people who delayed. Now, they're saying, "All right, I'm not going to delay anymore. I'm going to get in the market." More time, of course, has passed, so there's just the people who were going to get into the market this year as well are jumping on board, too, and the low-interest rates, people who are thinking, "I'm going to buy in 2022," are thinking, "Well," it's pulling that future demand forward, where you're saying, "All right, I might as well buy right now in 2021. Things became way cheaper. I can suddenly do it where I thought I couldn't before."

Andrew la Fleur: The fourth reason, I call it "COVID fatigue." Just people, I think, are sick of COVID. They've been delaying decisions for a long time and a lot of people think are just saying, "You know what? Enough of this. Time to get on with life. I'm going to buy that condo. I'm going to make that move. I'm going to get out of renting and become an owner," or people are just saying with the respect to condos in particular, elevators, not wanting to live in a high-rise building, people are saying, "You know what? It's not so bad. COVID is not as scary as we thought it was. It's going to go away." They're taking a long-term perspective, and so that irrational fear is coming back again. It's the pendulum swinging back away from the irrational fear, put your head in the sand, it's coming back to sort of a normal reality as people are sort of just getting used to this pandemic COVID world that we're living in.

Andrew la Fleur: Yeah, those are my thoughts on the condo market and what's happening there right now. It's going to be a wild and interesting 2021, and certainly, I think prices will be going up. As I said, that's the main message here is the market is hot. Once again, prices will be going up. They haven't really come up yet, but they will be very soon and the anecdotes from agents in the resale market are coming in. You just go on any social media and follow agencies, see people posting two offers here, four offers there, six offers there. A property was listed in the fall, just sat, no showings, now sold in a day with three offers. We're seeing that time and time again. People are putting up listings, in some cases downtown without even holding offer dates and the offers are coming in within hours of certain properties being listed, which was completely unheard of just a few months ago, so be good to see what's happening there.

Andrew la Fleur: On the rental side, I'll just comment briefly and say the rental market still is in the dump. It still sucks. It's still really bad, unfortunately. For us as condo investors, the demand still is not there on the rental side and rental prices, of course, have come down massively. Not going to probably see a turnaround there and the rental market. Again, until what? Until offices reopen and until universities reopen, once we get those two, and we need the immigration, of course. We need the bodies coming into the city, we need the workers going into their offices, we need the students going into their classrooms, so when those things start to happen again, the rental market will take off. But for now, that is definitely still a depressed market. Are people renting places? Yes. Are rental prices still falling? Ah, it's hard to say. They're probably stabilized for the time being right now, but it's definitely a renter's market still there.

Andrew la Fleur: Okay, there you have it. Just last thing I just wanted to say on the episode, if you're looking for an affordable investment, we've got a very good opportunity coming up once again in Calgary coming soon, so if you're interested to learn more about that, send me an email or give me a call, andrew@truecondos.com, or call/text (416) 371-2333. If you have been listening to the podcast over the last year, you've probably heard several episodes about Calgary and the market there. Very exciting to bring another opportunity. We've done a few of these. They always sell out. This one in particular is quite limited. It's a very small offering, small little building we've got there. I've personally invested in Calgary, multiple units there. Very excited about the future market in Calgary. If you look for something affordable that gives you positive cash flow, it's only a 5% deposit. If that sounds attractive to you, give me a shout. Love to tell you more about it. Until next time, happy investing.

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