Will Toronto Condos Make a Comeback in 2021?

Despite the worldwide pandemic and unprecedented times in 2020, Toronto’s condo market still remained strong through most of the year. Yes, there were seasonal dips and there wasn’t the usual spring market excitement as COVID-19 took hold of the city and we went into lockdown. But by the third quarter of the year, the condo market rebounded with a vengeance.

According to the Toronto Real Estate Board (TREB), the condominium apartment market experienced a dip in sales and new listings in the second quarter of 2020, as many potential buyers moved to the sidelines as a result of public health measures taken to combat COVID-19 and the resulting economic downturn.

However, in June, the overall housing market trended toward recovery and condo apartment sales made up for lost time.

Condo Listings in Toronto and Peel

In the second quarter of 2020, new listings and sales in Toronto were down by 48% and 19% respectively. Mississauga saw similar numbers even though the prices were not hit as hard and increasing slowly by 3.3% from 2019.

By the third quarter of the year, there were more than 17,000 new condo listings circulating in Toronto, according to TREB. Many investors moved to sell their condos, due in part to softer rental market conditions and the COVID-19-related drop in tourism (and AirBnB).

With more choice and competition between buyers, this resulted in a record high sales quarter and the Toronto condo market notched a record high average selling price, thus shifting the condo market into a buyer’s market.

My advice to investors looking at the condo market in Toronto is: this city is a good investment.

Why?

Toronto is attractive to tourists and international businesses, it has numerous post secondary institutions, and consistent immigration, therefore keeping the rental market robust.

Typically, the market is slow early in the new year, so condos are listed for a lower price than expected, yet property values continue to appreciate. Early 2021 figures from TREB show sales in the first half of January climbing. In fact, 822 condos in Toronto were sold between January 1-15, 2021. Investing now will pay dividends years down the road.

Investing in Toronto’s Condo Market

Investing in real estate in a city like Toronto is a great way to build wealth. Over the last 10 years, Toronto has seen an 8.3% annual appreciation, climbing higher than Vancouver, Ottawa and Montreal, according to the Canadian Real Estate Association.

Let’s break down a conservative look at a condo investment with some simplified numbers to show how today’s purchase will appreciate:

Early 2021: You want to purchase a 1 bedroom condo for $500,000 (currently there are over 65 available in the city.)

Due to the slow market, time of year and the COVID Pandemic, it’s likely most units are undervalued by $25,000 or 5%. Meaning, you can purchase a property that is normally worth 525,000. (According to recent reports, the condo market is already picking up stream and that 5% might not be there for long.)

Between now and the summer, you will likely gain that 5% back if not more in equity. (Considering the average increase in equity in the City of Toronto is around 8.3% year over year since 2010. That’s $41,500.)

As an investor you’ll need a tenant, and an average rental rate for 1 bedroom condos in Toronto is now around $2000.  Let’s say you can’t secure a great tenant right away, unemployment is high and companies are reformatting their work environment dramatically. Your investment sits empty for four months.  

Here is a Hypothetical Case Study by the Numbers:  

• $500,000 purchase price
• $100,000 down payment at 20%
• Interest rate at a conservative 1.63% amortized over 30 years is $1,406 per month
• Average condo fees on 1 bedroom condos in the city are between $350-$500 depending on the building, let’s say $430 for argument sake.
• Property taxes are around $1,600 per year which is $133 per month.

Adding up all of the costs to carry the 1 bedroom condo:

$1,406

+ $430

+ $133
= $1,969 per month of investment cost.

Total cost for your investment sitting empty for 4 months is $7,876.

That’s a lot of money considering you have just paid $100,000 for a down payment. But remember, your equity is quietly growing in the spring and the summer, which will earn you 5% ($25,000) or more back as the market wakes up during those busy times. All the while someone is paying the full cost of your investment and you are reaping the future rewards.

Then you can decide if you keep the condo as an investment for the long term, or sell in a couple of years at that higher price point and make a profit.

Not everybody has 100k at their disposal and if you want to play with the numbers a bit and see what your options are,  here’s a great calculator you can use. Mortgage Calculator

Condo market predictions for 2021

Anecdotally in 2020, we heard that condo dwellers were selling and moving out of the city to find more house, with outdoor space and room to create a home office. I helped three clients do exactly that and put more kilometers on my car than I wish to admit.

From what I saw, those who could afford to climb the real estate ladder, did.

The other side to that story is an influx of new product on the condo market, meaning it became a buyer’s market - which is great for first-time buyers and first-time investors, and those who cannot afford to move up to a home, yet. In many cases, anyone who is looking to invest, has a chance to buy a condo in their preferred neighbourhood.

My prediction for 2021 is that the condo market will continue to rise in popularity, making it harder to find the suite of your dreams at the price point you prefer.

My advice: anyone looking to invest should do so now!

As 2021 unfolds, and the COVID-19 vaccine is administered, we will watch as the city returns to some semblance of normal. At that point, if potential homebuyers begin their search, it may be that you have waited too long, supply will be down and prices will be up.

If you have any questions about the condo market, or are wondering whether now is the right time for you to buy or sell, or want to know more about my real estate predictions for 2021, let’s connect for a virtual coffee chat! Call me anytime at 647-801-2233 or send me an email here.