How long-term data can guide your real estate decision

The real estate market in the GTA has had a tumultuous two years due to the pandemic. For the average new-home buyer or first-time investor, every data source seems to be telling a different story.

Many new condo investors, used to seeing Toronto rents skyrocket every year (the average rent for a condo unit in the GTA was as high as $2,500 per month in the third quarter of 2019), experienced a rough 2020. Average rents declined 20 per cent to a low of $1,990 in the first quarter of 2021, according to data from rentals.ca. However, the market appears to be on the long road to recovery, as it has posted increases in the last two quarters. In Q3-2021, the average rent for condo apartments increased by four per cent quarterly to $2,120 per month.

Fuelling demand

The decline in rents didn’t stop investors from buying new condos last year, and the recent improvements have continued to fuel demand. According to Altus Group, GTA new condo sales in August were the highest number of units sold in August on record – up 35 per cent from August 2020, finishing 129 per cent above the 10-year average. New condo prices are up 10 per cent year-over-year – this is particularly shocking given how fast units are shrinking.

In a recent presentation to the Association of Ontario Land Economists, new home industry marketing expert Andrew Brethour noted that inflation on building products is pushing up pricing, while also noting that there are only 3.7 months of new home supply, and 12 months is a balanced market. Tight supply is another factor driving up highrise condo pricing. Brethour warns that given the high inflation in the economy, interest rate hikes could come sooner than expected, and this could stem some of the demand we’re seeing currently.

New condo prices are increasing at a slightly slower pace than resale, which increased by 13 per cent in September, according to the Toronto Regional Real Estate Board (TRREB). The pace of growth is particularly impressive, given the high number of new condo completions in the Toronto CMA this year, with 17,500 from January to August, per data from Canada Mortgage and Housing Corp. This figure is slightly less than the entire 12-month total in 2020, and higher than the annual totals in 2016, 2017, 2018 and 2019.

Immigration on the rise

To summarize, more supply is being completed and new and resale prices are still growing. Brethour notes that demand could pick up even more when immigration increases; stats show there were just 61,055 international immigrants to Toronto in 2020 (-48 per cent annually), when the rate was almost double that in 2019. With more than 50,000 immigrants in the first half of 2021, the expectation is the Toronto CMA will bring in more than 300,000 new immigrants over the next three years – getting back to the pre-COVID levels very quickly.

Lastly, Brethour points to a Scotiabank study that shows Canada is one of the worst countries in the G7 for building new housing, and our newly re-elected Liberal government wants to increase immigration nationally to more than 400,000 a year. Even casual readers can understand what that means for house prices.

If you didn’t buy early on during the pandemic, you missed out on the few deals that were out there. Demand looks to remain very strong, with increased immigration offsetting a potential rate hike. Supply still isn’t keeping pace with demand, and despite a pick-up in unit and building occupancies in 2021, prices continue to rise at double-digit annual rates.

I’m not trying to scare anyone into buying, but if you’re waiting on the big crash, you might be waiting a while – the imbalance between supply and demand is not a short-term phenomenon. Do your own research, and read both sides of the story from both the bears and the bulls. Good luck.