What is happening in the market right now?
Toronto's red hot real estate market has definitely hit the brakes. Full Stop. January and February were incredibly active and the market on pace for double-digit appreciation with some forecasts predicting the year over year increase to the average sale price to be upwards of 20%! Even during the evolving COVID-19 pandemic, March was an incredibly active and strong month as the stats below will show.
However, as the pandemic has evolved people have thankfully heeded the message from government and healthcare officials advising that they stay home unless absolutely necessary. As I have said in my previous video, this isn't life and death it is real estate. So unless people absolutely need to buy or sell, this is a time to press pause. The tire kickers are gone. People who are buying houses now are serious. They need to buy. Sellers are no longer 'testing the market'. They need to sell. This is how real estate should function as an essential service. I will go over our COVID-19 safety procedures and best practices in greater detail in our next newsletter but I still do want to give you a sense of what viewing / buying a property is like these days. Below is a brief outline:
Check out the listing online
View the virtual tour
Have the listing agent or buyer agent do a private virtual tour so that you can virtually walk through the property and ask questions.
Then depending on the situation, you will either proceed with:
Option 1 which consists of viewing the property one person at a time without touching any surfaces, with the intent of submitting an offer if it is as good as it looks in person as it did online. This option, however, is typically limited to vacant properties and most condos, are not allowing outside visitors or realtors so this isn't available for numerous condos throughout the city.
Option 2 which is becoming more common, is to negotiate an offer and make it conditional upon the buyer viewing the property within a few days of an accepted agreement. This means that the buyer is submitting an offer without having actually seen the property and is relying solely on virtual tours, photographs, and videos (which also harks to my dogmatic belief that beyond pricing, photos and videos are critical to successfully marketing a home!). Now while these virtual tours have come a long way, it is still very tough to purchase a property without seeing it. If you were about to spend $1 million dollars wouldn't you want to tour the neighbourhood, visit the local shops and restaurants and spend some time in the home? I don't care how many 'tech experts' tell me that buying a home can be done entirely digitally, I think they are wrong. They just don't understand how personal and emotional buying a home is. It's not like ordering something off Amazon.
Almost all deposits are being completed via wire transfer
Walkthroughs and property inspections are often limited to once the seller has vacated the property. It is also important to note that most home inspectors are no longer providing inspections with other people in attendance or they have simply stopped altogether.
All meetings with lawyers, lenders, insurers, and signing of the relevant closing documents are being completed digitally rather than in person.
Movers are an essential service, but many people are waiting until the pandemic has subsided before moving so getting into a new home can be tricky.
The number of appointment bookings and offers registered on properties via the Broker Bay for the past month confirms that most people have shifted any and all buying to the digital world:
Another interesting development is that we are seeing more and more buyers and sellers leaning on their Realtor's professional networks. It is situations like this where having a well connected and respected Realtor representing your best interests and working on your behalf is worth its weight in gold. We have had more agents contact us in the past weeks than I can remember. If we have a client that needs to buy or sell, we can connect with our colleagues and often times find someone that has a client looking to buy or sell exactly what someone else's client needs. Deals can be done with the absolute minimum amount of in-person visits or interactions. Usually, just a single visit with a single buyer can get a deal done which is how we should be operating as an essential business. For those houses that are on the MLS system, I believe the best strategy and most socially responsible is to price properties as close to fair market value as possible and attract those buyers who are still looking so that everyone can have an honest negotiation about each other's expectations and get a deal done in the shortest amount of time and in the safest way possible. This isn't the time for underpricing homes, holding an offer date, and trying to get a stampede through the front door in the hopes of a bidding war.
So all of this leads to the big question which is 'what will be the overall impact on COVID-19 on the housing market?' The early numbers and overall sentiment is that the market will see a drop in sales and a likely dip in pricing during this pandemic before returning or even surpassing the numbers from the first 2 months of 2020 once the pandemic is declared over. Now the situation does change on a day to day basis, but this does seem to be a consistent view across the industry. While it is very difficult to show a property (as it should be!), properties that are fairly priced, are still selling and selling for good prices. This is largely due to the fact that even though the number of buyers has drastically decreased so have the number of active listings. The number of active buyers and sellers in relation to one another has not significantly changed. We definitely aren't in the red hot seller's market that we were a few months ago, but we are still in a balanced market with strong prices.
Because anyone that doesn't have to sell is simply terminating or suspending their listing with the intent of selling at a later date. The demand isn't evaporating, people aren't saying they will never buy a home. They are just waiting. We are doing daily digital consultations and property evaluations (I stress digitally and from the safety of our own homes once again!) with buyers and sellers who are looking towards the future with the intent of buying or selling their homes as soon as the COVID-19 pandemic is declared over. Housing will likely be the last market to see a decrease in pricing and the first to rebound - especially when compared to the stock market. But there will be short term pain before we return to the active market that we saw for the first 2.5 months of this year.
Finally, I want to say something about a market segment that I believe will be negatively affected and hit quite hard. And that is the investment condo market from the eventual offloading of units from so-called 'professional Airbnbers'. There are certain buildings in the city and certain investors that have 10, 15, 20 units throughout the city that have seen their income stream dry up for the foreseeable future. The investors who have enjoyed the 'easy money' that Airbnb offered are quickly finding out that there is no such thing as a no-risk investment. In my opinion, which is shared by the majority of our investors, the best strategy for real estate investing is buy and hold. Buy a great property, find a AAA tenant, sign a long term lease, and let the property appreciate and remain cared for by a diligent tenant. Also, this is a great time to remind everyone the importance of a fully-funded emergency fund for your investment properties! Airbnb can be great and was designed for renting out a room in your house to help pay the mortgage. A basement apartment that you use half of the year and rent out the other. It is great for a pied-a-terre that you use 2 weekends a month and rent out the other. But it was never designed to be used by corporations and super-hosts to create a cottage hotel industry. Once you cross the threshold of multiple units Airbnb you aren't a landlord. You are a hotel operator and far more at risk to the ebb and flow of world events that affect hospitality and travel businesses.
I am also very curious about what the long term viability and acceptance of Airbnb will be in Toronto following this pandemic and with the new city bylaws. Many condo corporations are now outlawing Airbnb as a matter of public safety and liability. There are going to be certain buildings in the city that will see their values significantly drop in the wake of COVID-19. Not to mention that the federal government has little appetite to provide financial compensation for Airbnb hosts. What I would say to you as someone who may be reading this and thinking 'hey there might be some deals to be had in these buildings' is don't do it. If it wasn't a good investment or a well-managed building 1, 3, 5, 10 years ago, it's not going to be a good one now. Even if it appears to be a relative deal. Remember, that the single most important aspect of purchasing a condo is to buy in a good building with good management and a strong board of directors. Good buildings hold their value better in turbulent markets, bad ones do not. Not all condos are created equal and these ghost hotels and their investors are unfortunately going to have some difficult times in the coming weeks and months.