STARION: UNDERSTANDING THE IMPACT OF COVID-19 ON THE GTA REAL ESTATE MARKET
THE LOCAL IMPACT OF A GLOBAL PANDEMIC
We truly live in a global village where major occurrences have wide spread effects far beyond the borders of the country in which they began. The Covid-19 Pandemic has in a matter of weeks altered how we live, trade and communicate with the world around us. We've seen major sports league events, retail outlets and airlines postponed or completely shut down. This leaves the best of us wondering what is happening with the real estate market. We all will like to know how our local real estate market is responding to the Covid-19 Pandemic (Social Distancing Measures) that has effectively halted key in-person activities that help with the sale of real estate. It is true that we all have so many questions regarding important aspects of our lives at this very moment; so with real estate being one of the largest investment of our lives, having some clarity and knowing how the real estate market is fairing is of great importance and we hope this will be one item off your "think list".
Understanding how any market is fairing comes down to analyzing synthesized data (numbers) over a period of time and then utilizing results of the analysis to make decisions and predictions. Pulling from charts and data from leading Canadian Research and Financing Firms as well as the Toronto Real Estate Board, we are able to see the true tale of two markets where there's increased market activities in the first two weeks of March and reduced market activities in the last two weeks of March as social distancing measures were in full swing.
On March 11th, 2020, the World Health Organization (WHO) officially declared Covid-19 a pandemic and in a matter of days, key social distancing measures to flatten the curve followed. This announcement and measures that followed brought about a significant dip in market sale and listing activities all across the board with the later days/weeks in March making up for majority of the reduction in market activity, hence making it a significant tale of two different markets in a month. That being said, it must be noted that if social distancing measures remains in coming months, there'll possibly be further reduction and change in market activities which will be further analyzed and utilized at that point in time.
Source: Bull Pen Research Consulting & Firm Capital
The chart above shows the number of resale housing transactions in the Greater Toronto Area (GTA) by days in the first 18 days of March. Eight of the first 11 days had sales in excess of 300 which highlight a regular active market, while the 12th to 18th day all experienced sales below the 300 level, with four of those six days below 200 sales. (Source: Bull Pen Research Consulting & Firm Capital). Days after the announcement by the WHO, the real estate market typically responded with a drop in sales and a slight drop in overall average sale price, but surprisingly, demand measured by Sales-to-Listings Ratio (SLR) and Days on Market (DOM) indicate very strong and active demand with days after the announcement recording SLR above 103.5% and DOM well below 15 days with the 14th and 15th of March showing DOM of 9 and 7 days respectively. This as you can imagine is a good indication that Buyers are still looking for the right property and are bidding well above asking prices with homes sellling in about two weeks on average
To better get a sense of how strong the real estate market is amidst this pandemic, lets take a look at the Toronto Real Estate Board Total Residential Transactions, Total New Listings and Average Selling Price Numbers for the month of March with Year To Year and Seasonally Adjusted comparisons.
Source: Toronto Real Estate Board (TREB)
This chart above shows that home sales between March 2020 was up by 12.3 per cent compared to 7,132 sales reported in March 2019. The 12% increase is mainly indicative of strong sales in the first 2 weeks of March 2020 (1st - 15th of March Pre-Covid Measures) as opposed to the decline in sales that occurred in the last 2 weeks of March (15th - 31st of March Post-Covid Measures).
In March there was a clear shift in market activity between the pre-COVID-19 and post-COVID-19 periods. Needless-to-say, the overall March sales result was evidently driven by the first two weeks of the month. In the first two weeks of March 2020 according to TREB, 4,643 sales were reported, accounting for 58% of total transactions and representing a 49% increase compared to the last two weeks of March 2019 (See chart 3 below). In the last two weeks of March 2020 according to TREB, 3,369 sales were reported; accounting for 42% of total transactions which was down by 15.9% compared to the same two week period in March 2019.
In analyzing chart 3 above, it is clear that not only did sales dip in the second half of the month, but so did New Listings by 18.4% in comparison to same time (2nd week) of March of 2019. What's significant to also note is that the first 2 weeks of March 2020 (1st - 15th of March Pre-Covid Measures) showed an incredibly hot listing market where listings were up 33% with average price seating at $931,788; which is a 16.8% increase compared to same period in 2019. So while there was a rapid dip in Sales, Listing and Average price in the second half of the month, the first half of the month showed how strong the market was steaming from key fundamental factors like lower interest rate pre-COVID-19. This becomes significant considering that rates have dropped further and the government have plans to drop rates if required.
Overall, looking at Chart 4 below, Total New Listings were up 3% compared with March 2019 and percentage Sales to New Listing Ratio which is a measure of the absorption rate or rate at which new listings are solid was up by 5% comparing to same month in 2019
Average selling price as shown in Chart 5, gives a clear picture of how stable the market has been irrespective of the Covid- 19 Pandemic taking a toll on Average price post-Covid-19. Comparing to same time last year, average price for the GTA real estate market was up by 14.5% which is a testament to other key factors and fundamentals like quality net population growth, consumer market confidence, increase in foreign investments / capital and overall reduced interest rates.
Average price of real estate is always the focal point for anyone looking to get a good but quick sense of whats going on in any market place. Average selling price is also one measure that's observed differently depending on who's looking at the numbers. Current home owners and investors that have owned their real estate in the last 3, 4 or 5 years won't be hurt to see the Post Covid-19 Average Selling Price as well as the seasonally adjusted Average Selling price. Reason being, irrespective of the slight reduction in price, actual market price in key parts of the GTA are still selling at/or above asking price.
On the flip-side, first-time home owners and investors are interested in seeing prices in key parts of the GTA reduce to affordable levels as this means they might be able to purchase and save a few thousands in comparison to what they would have paid in a regular market where they are most likely completely priced out. First time home buyers and investors will be interested in seeing reduced prices so as to also take advantage of historically low interest rates.
TAKING ADVANTAGE OF A MARKET SHIFT
In analyzing available data provided from leading and reliable institutions, it's easy to see that the GTA real estate market is extremely resilient due to key factors that have kept demand and prices relatively strong. This level of resilience amidst a major global shut down is not something new. The Canadian Economy and Real Estate Market showed extreme resilience in the face of the 2008/2009 Global Financial Crisis. Its important to note that the measures that saw us through the 2008/2009 market crisis are incomparable to the measures currently in place by Federal and Provincial Authorities.
Every changing market landscape presents opportunities that must be utilized in line with understanding of key factors and strategies. We know that the GTA Real Estate Market will maintain its strength because of factors highlighted in Chart 6. What has also become a win-win for home-owners and investors is that leading financial institutions are now willing to work with borrowers in order to secure prime opportunities.
With these factors in place alongside confidence in the market/economy, we believe that once the Covid-19 Pandemic is officially under control or eradicated completely and social distancing measures are pulled back, we will see the real estate market bounce back into full swing as a larger pool of buyers (currently waiting to see how things go) will be looking to take advantage of reduced price in key markets which in and of itself will eventually drive price back up. Also it's important to understand that with demand poised to maintain its current momentum, it is conceivable that affordable market segments (that might become even more affordable within certain pockets) like Condos, Condo Townhomes, Freehold Townhomes and some Semi's in the GTA will see the most market activity (sales and steady increase in average price) once we get back to a regular market.
STRATEGIES ON HOW TO TAKE ADVANTAGE OF A MARKET SHIFT
It is important to see our current market shift as an opportunity. The million dollar question for most investors and home buyers becomes how does one take advantage of the current opportunity. Chart 7 below sheds light on key strategies that we recommend for both pre-construction and resale investors and home buyers.
Investing in today's market should be done with a strategic longterm view in mind. Investors and home owners are better off holding their properties and using the built up equity to invest in other assets in order to build a portfolio of income producing properties over a period of time.
From our analysis and understanding of market hotspots, it is more than likely that investors and home buyers will get better deals by investing in New Emerging Geographic Markets or Neighbourhoods. Reason being, with resilient increase in demand and average selling price, it is evident that price in core markets (Downtown Toronto, Mid-Town etc) will maintain momentum or possibly increase once we return to a regular real estate market. This means that key pre-construction and resale opportunities for investors and home buyers will remain in key neighbourhoods that are currently on the rise across the GTA (See chat 8 below).
Paying close attention to New Emerging Geographic Markets (EGM) or Neighbourhoods (within and outside the GTA) will be key to successfully taking advantage of this market shift. What makes EGM's prime opportunity spots amidst a market shift is the fact that they posses key attributes like transit expansion or a Transit Hub, that makes for increase in longterm value as well as positive price and rental appreciation post Covid-19.
In line with any market shift, what remains true is that investors and home buyers must to stick to the facts, maintain focus on the fundamentals and be creative in order to take advantage of prime market opportunities. With interest rates at an all time low as well as current and foreseeable changes in lending criteria's, this is without a doubt the time to take advantage of opportunities in the pre-construction and resale space. From a creative perspective, investors or current home owners can seek to use the equity in their existing properties as well as partner with like minded investors to pull funds/capital in order to take advantage of available (single or multiplex) opportunities thereby mitigating risk, sharing expertise and increasing the possible/potential reward. Being creative should only be done by using experienced Real Estate and Mortgage Brokers that are also investors and have personally structured creative deals for themselves.
The number's in March showed us a tale of two markets but as you can imagine the dataset for April will give us better sense of how the real estate market shapes up in view with a full month of the Covid-19 social distancing measures in place. Whats significant to note is that even if or when the numbers show a completely fall off from what we've been used to in the past, what remains true is that there are still key opportunities for anyone thats able to look beyond the numbers and pay attention to the fundamentals which is where the best deals and opportunities are born.
In conclusion, business and economic cycles whether caused by systemic corrections, natural disaster, epidemics or pandemics create new markets and test investment objectives of institutions and individuals. They test the fortitude and strategic reasoning and positioning of institutional and individual market participants. Economic Cycles therefore are opportunities for institutions to revise strategy, evaluate and take advantage of new opportunities / new markets. Economic cycles if understood and properly positioned for offer tremendous opportunities to invest and build generational wealth because cycles create wealth transfers which is exactly why the Starion Team is here to guide and align clients with the best analysis and information they need to make quality decisions and build generational wealth even in uncertain times and market conditions.
For Media Enquires Contact:
Ajoke Anyanwu | Chief Operating Officer
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