With the arrival of 2020, it is hard to believe we are already entering the second decade of the new millennia. Where did the time go? Toronto has had its fair share of ups and downs, especially when it comes to the real estate market. Whether you are thinking of buying or selling in 2020, you probably wish you had 20/20 future vision to predict if this is the year to get in on the action. Here we review seven important predictions for 2020 Toronto real estate to help you decide.
1. Expect Inventory Shortages
Possibly the number one challenge Toronto real estate will face for 2020 is the growing concern that the number of listings is not keeping pace with sales. If the number of new listings fails to keep pace with climbing sales, it has a negative effect on the inflation of prices. While this is good news for those wishing to sell, overall it causes issues as it can lead to over inflated prices.
Toronto already sits in an unflattering position when it comes to the world’s most overvalued markets. According to UBS AG’s annual global real estate bubble index Toronto is the second most overvalued market in the world. Although it seemed all eyes were on Vancouver as the highest priced homes in Canada, Toronto is worse. In fact, the report states that it is unlikely Toronto will see any kind of price correction in the near future. The inventory problem will help keep this prediction a likely possibility.
2. Housing Prices will Rise Again
We’ve heard this before, but rising prices is an ongoing concern. Momentum will continue to grow for 2020 with prices heading further north of the $1 million mark. According to a Toronto Star article, prices are likely to see a rise of about 4.5 percent for two-story detached houses in Toronto, making the average price sit at $1,027,000.
Experts cite low supply in hand with a surge in population as the cause behind the rising prices. The downtown area will see the highest prices although surrounding areas throughout the GTA such as Richmond Hill and Markham will see a higher percentage rise by about 4.75 percent.
"Increased competition between buyers has resulted in an acceleration in price growth," says TREB's chief market analyst, Jason Mercer. "Expect the rate of price growth to increase further if we see no relief on the listings supply front."
3. Rising Condo Prices
While semi-detached homes will see a 4.5 percent rise, this seems quite small when compared to predictions for condos. 2020 will remain a hot market for Toronto condominiums which could see an increase of 6 percent based on the same Royal LePage 2020 predictions. While people sell to access equity built in their condos, this will continue to affect demand for houses in the GTA. However, it will also help those looking for condos if more units become available on the market.
4. Millennial Influences
When it comes to the age group that is influencing Toronto real estate the most, millennials between 26 and 32 will be looking for homes for their growing families. This will place further pressures on inventory challenges for houses in Toronto as this age group sells their condos in pursuit of a detached or semi-detached home and the luxury of a backyard. All these predictions work together as millennials helped increase demand for condos when houses in Toronto were out of reach. This in turn has now helped push condo prices up increasing 48 percent since 2014.
However, this same age group will be more interested in heading to the outskirts of the GTA as they are drawn to the suburbs thanks to their growing families. They will be wanting what their parents wanted, the dream home with the big yard and a quiet life away from the hustle and bustle of the downtown core.
5. Commercial Real Estate Increases in Demand
According to Scott Addison, president of brokerage services for Colliers Canada, there will also be changes in the commercial real estate market. “The office leasing category has been really strong, other than Calgary, with Toronto leading the way and Vancouver not far behind,” he told the Globe and Mail.
Toronto alongside Vancouver had the lowest office vacancies in Canada dropping below 3 percent in 2019. Average lease rates for prime office space in Toronto reached $50 to $90 per square feet, according to Bill Argeropoulos, of Avison Young (Canada) Inc. He told the Globe in major downtown markets like Toronto, new office space is often pre-leased. This shows how healthy the commercial real estate market is in TO.
6. Investors Eyeing Industrial Space
Meanwhile when it comes to investors, the industrial side of commercial space is of interest. Frank Magliocco, partner, real estate and assurance for Price Waterhouse Coopers Canada told the Globe and Mail that e-commerce is a major influence when it comes to large scale warehouse space. “It’s all about beds and sheds – beds being multifamily and sheds being industrial. That’s where they put their money,” says Mr. Magliocco.
With an increase in rental rates from $5 per square foot to $9 and low vacancy rates just over 1 percent, warehouse space can be lucrative. With demand for e-commerce space there is a reduction in demand for retail space. It is more the growth of e-commerce then the demise of retail that is causing investors to look at retail real estate with caution. “Retail, more than other asset classes, is being approached with caution, as the long-term implications of e-commerce are uncertain – keeping some investors at bay for now,” says Bill Argeropoulos.
7. Mortgage Rates and the Market
The Financial Post reports that Carolyn Wilkins, senior deputy governor of the Bank of Canada says mortgage rates helped to boost the real estate market. In general, there are several factors that will help keep things balanced. Although demand is tight, the measures put in place by the government to help regulate home purchases will reduce risks associated with inventory shortages. This, says the Bank of Canada, will help manage inflationary pressures of low inventory, especially the mortgage stress test.
However, people should remember Prime Minister Justin Trudeau has finance minister, Bill Morneau looking at potential changes to the tests. What changes this might include and how they will affect the market is yet to be seen.
If you are looking for a Toronto home, we can help. The experts at OnlyWith.ca are keeping an eye on the Toronto real estate market for 2020, with the expertise to guide you on the best decisions for housing in the GTA. Reach out to our team today.