The latest figures from the Toronto Regional Real Estate Board (TRREB) numbers seem to back up the trend, with overall sales growth in the 905 area (near Toronto) higher than in the city’s 416 centre.
But the reality is more complicated, experts say.
That’s because moving to the suburbs, or even exurbs, has been a trend for several years, generally among a certain demographic and due to the hot housing market in Toronto.
COVID has exacerbated the trend, experts say, but there are also factors to take into account that suggest we aren’t about to see tumbleweeds in Toronto’s core because of the pandemic.
So, here’s what’s going on.
Who’s Leaving and Why
Millennials are driving much of the market now, says Diana Petramala, a senior researcher with the Centre for Urban Research and Land Development at Ryerson University. “We have underestimated the impact of millennials on housing markets and overestimated the impact of boomers.”
Boomers are staying in their houses as long as they can. The Ontario government estimated the housing stock will not open up from boomers until 2041, Petramala says.
Still, the move out of the city is a trend that can be seen across generations, from boomers to Gen X, she adds.
The most important consideration for those moving to the suburbs, and even exurbs, is affordability, says Petramala. The other is that millennials are starting families, which drives their need for more space.
If you look at surveys of how people choose their homes, first-time homebuyers cite ground-related homes as being a main consideration, says Petramala. In other words, many would prefer houses and townhouses with yards over condos.
In the August survey by the Mortgage Professionals of Canada, the top reasons cited by renters for wanting to purchase a home include:
- 28%: “I want to live in a nicer home”
- 14%: “My home is no longer suitable”
- 14%: The current situation makes this a good time to get a deal”
- 12%: “Low interest rates make this a good time to buy”
- 11%: “I want to live somewhere less expensive”
Millennials, especially, many of whom are renters in condos in the City of Toronto, see low interest rates as a ticket to owning a home, Petramala says. Other jurisdictions, outside the GTA, have also seen people moving out of condos, she adds.
Where Are They Going?
What’s interesting is that many are skipping the one-hour commute and going beyond to places like Barrie and Innisfil, says Petramala.
Scott Ingram, a chartered accountant and sales representative with Century 21 Regal Realty. Inc. says he knows people who have jumped over Burlington and Oakville and gone to Hamilton.”
Durham is another strong region attracting people away from the city, says Ingram. “It is cheaper than York and Peel… You could trade your $650,000 condo in Toronto for a house [there].” For instance, the average detached house in Oshawa is $672,000.
Surveys show home buyers value quality and affordability, as well as access to a social network, such as family, over amenities or commute time, Petramala says.
What About COVID?
COVID-19 affected where people are buying in two ways.
One is the near-shutdown of market activity in March and April – a key home-buying season. This created pent-up demand, says Jason Mercer, chief market analyst with TRREB. “A lot of households took a step back in April and May.”
When the economy opened up in the summer, not usually the strongest buying season, “we did see a strong uptick in year-over-year new listings,” Mercer says. So buyers who had been sitting on the sidelines had properties to pick from again.
The uptick was especially strong in the condo segment, Mercer says. The number of new condo listings was due to several factors, including the fact that a lot of former Airbnb rentals were no longer being able to be rented, so owners added them to the stock. As well, newly built condos where construction had continued were also coming available. This affects the overall numbers for the city, as that’s where the largest numbers of condos are. The dominant home type in the 905 is detached and semi-detached, he adds.
This has shifted supply and demand ratios, and put downward pressure on condo prices. This is exacerbated by the fact that many condos are bought by investors for renting, especially on the short-term Airbnb market, which tanked following the closing of borders.
The average rental price of 1- and 2-bedroom condos is down 6-8%, says Nima Khadem, broker with Royal LePage Signature. While the average price of a condo compared with last August is up, from $619,000 last year to $673,000 this year, this reflects the skyrocketing prices up until February. If you compare August to February, you will see a drop in condo prices, he says, from $722,000 then to $673,000 in August.
The strong market will likely slow down in the fall, says Mercer, as the pent-up demand is satisfied and seasonal patterns of buying return. The lowest level of sales are usually in the winter. But because of the uncertainty around the pandemic, it is hard to forecast, he adds.
The other aspect of the pandemic is that it exacerbated trends already in place. The people who were already valuing space over amenities found themselves crammed into small spaces, trying to work from home with roommates, partners or kids. This likely made some buyers move up their plans to look for more space – inside and outside the home, Petramala says.
When it comes to the pandemic’s effect on where jobs will be located, Petramala says she sees “most jobs staying downtown,” while just how long the current work-from-home trend will continue is not clear.
As for the economic effects of the pandemic — and a probable drop in incomes for many — this may be a shorter-term factor when looking at the longer-term prospects of real estate in the 416, Petramala adds.
Will Toronto Empty Out?
One thing to note about the latest TRREB numbers is that the sales numbers for freehold homes in the 416 area code, or the City of Toronto, were stronger than in the 905 region.
The average year-over-year change in detached home sales in the 416 was up 65.3% versus in the surrounding GTA regions, where it was up 47.3%, says Mercer.
So there is demand to live in the city, but, again, with more space.
The condo market, on the other hand, has more supply and less demand. And normally, about 60% of the transactions in the 416 are condos, whereas in the 905, about 80% of transactions are freeholds, says Ingram.
So will the condo market pull the 416 real-estate market down?
The population of the Greater Toronto Area (GTA) has been growing through immigration, replacing those who are leaving, says Petramala.
The generation after millennials is growing, says Petramala, whether through immigration or births in Canada. In fact, Ontario is forecasting a higher birth rate than in the past few years. This affects both millennials, who need more space for their growing families, as well as a slightly larger cohort in a couple of decades of young people looking for homes before they start a family. They will likely be the people who want to live near work and amenities in the city.
The slowdown in immigration is likely temporary, Petramala says. Right now, there are constraints in applications and processing and even flights, but, if you look at Canada’s population clock, immigration is still currently positive. And at some point, Canada will need more immigrants.
One question with an unknown answer is what will happen after the election in the United States, Petramala says, and how favourably that might make Canada look to potential immigrants in comparison.
The answer to whether the city centre will suffer depends on whether one believes this trend is a short-term or long-term one, says John Pasalis.
“I believe this trend is a short-term one. Once the risks associated with COVID have softened I don’t think recent grads are going to want to live and work out of the sleepy outer suburbs of the GTA. Falling rents will only make living downtown more attractive once COVID fears have eased.”
As well, the return of migrants — from within or outside the country — would raise demand for condo rentals, says broker Khadem. This would drive demand and interest investors, who see condos as a long-term investment. “Right now, I have investor clients grabbing deals,” as condo prices have softened, he adds.
Still, there appears to be “a flight to low-rise housing” and anecdotally, there seem to be fewer investors buying right now, Ingram says. Lower rents may also make potential buyers change their minds, he adds.
No crystal ball
In terms of forecasting, two months of TRREB data is not enough to determine whether COVID-19 will affect where people choose to live, says Mercer. And there continues to be an overall supply crunch in the GTA, he adds. This suggests that the real-estate market won’t implode in the 416.