Toronto’s real estate market appears to be roaring back to life, but some housing industry observers believe prices are being propped up by a combination of government income support programs and high-income earners who have yet to feel the economic pinch of the pandemic.
“If you look at where the sales growth was in June, it was in the mid-to-higher end of the market. Single-detached homes and townhouses,” said Robert Kavcic, a senior economist at BMO Capital Markets. “When you go down the spectrum, condominium sales did look quite a bit weaker in June year over year compared to houses.”
Toronto Regional Real Estate Board (TRREB) data released Tuesday showed the average selling price of a home in the Greater Toronto Area rose 11.9 per cent in June 2020 compared to a year earlier, and up 7.8 per cent compared to May 2020.
The housing market is to some extent floating on COVID-19 income support programs
David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives
But the strongest price growth came from the detached and semi-detached market segments in the City of Toronto, which increased by 14.3 per cent and 22 per cent, respectively, compared to a year earlier.
“The housing market is to some extent floating on COVID-19 income support programs and people who are making above $16 an hour who haven’t yet lost their jobs or taken huge salary cuts,” said David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives.
“We already know from the Bank of Canada that 14 per cent of mortgages have been deferred through the banks’ mortgage deferral program. You can imagine that if 14 per cent of all mortgages turned into rushed sales, in order to cover mortgage payments, that would have an impact on supply.”
A lack of housing supply, especially single-detached houses as well as homes near public transit, in many urban centres — Toronto, Vancouver, Montreal and Ottawa — has created a severe affordability crunch, one that has been exacerbated by the pandemic.
For example, year-over-year listings in Toronto in May 2020 dipped by 53 per cent. In June, new listings were up 2.1 per cent compared to a year ago, but active listings at the end of the month were still down 28.8 per cent compared to June 2019, according to TRREB data.
“The root of the issue continues to be supply. In the beginning of 2020, we had this huge surge in demand, and I was seeing 10 offers on a single property on average,” said Christopher Alexander, executive vice-president and regional director of the Ontario-Atlantic Region at RE/MAX Integra.
“Even if you took out half of those buyers, prices are going to remain competitive. And we have no real plan to tackle supply, no real incentive for developers to build affordable housing.”
BMO’s Kavcic characterizes the pandemic housing market as one that was merely “shut down for two to three months,” but has since found a way to open back up.
“Now that we have opened back up, there’s a lot of pent-up demand from people who have not been impacted by the recession and still not a lot of supply, so prices are naturally coming out of this in a strong way,” he said. “But as we go on through the end of the year to 2021, I believe that’s where we will start seeing the longer-term impact of the pandemic show up, and maybe pressure the market down a little bit.”
To some extent, the latest housing data coming out of both Toronto and Ottawa (housing prices surged 15 per cent in the capital region in June) contradicts a forecast made in May 2020 by the Canada Mortgage and Housing Corp., which predicted prices would plummet from nine to 18 per cent over the following 18 months due to a decline in sales and job loss pressure.
Alexander, who has been critical of the CMHC in the past, said the federal agency’s predictions are usually not based on real-time data.
“We are working in real time with consumers and can judge their confidence level and buying power,” he said. “The CMHC looked at the number of mortgage deferrals and made their predictions, but when you peel back the onion, a lot of deferrals were coming from people who deferred paying because they could, not because they needed to.”
Macdonald disagrees and is convinced that September is going to be the real deciding point if income support programs end.
“The housing market functions at a glacial pace compared to, say, the stock market,” he said. “I think that in the fall, as COVID programs wind down and job losses extend beyond lower-income earners, the housing market will re-engage in reality.”