Housing expert Benjamin Tal talks on the winter real estate market, the vaccine, and the economic recovery

Today we would like to bring to your attention interview with very well known housing expert and the deputy chief economist at CIBC World Markets, Benjamin Tal.

Has the housing market exceeded your expectations recently? 

Definitely. We’ve seen one of the most successful V-shaped recoveries. The market recovery wasn’t unexpected, it’s the pace of it that came as a surprise. When people try to understand the reason for that they tend to point to a strong demand and historically low interest rates, and it’s true. Nevertheless, there’s much more behind it. Today’s qualification rates of 4.79% for variable and fixed-term mortgages are actually higher from a qualification perspective than in 2008. And back then, this activity slowed down. This recession is the most housing-market-friendly on record. It’s not just about the industry, it’s also about the damage to the labour market.

How has the labour market activity affected the housing market?

Almost all jobs lost during this recession were in the sector of low wage occupations. Many of those workers are renters and not the resale market players. It means that a huge segment of households was not affected by this crisis financially, as they still have their jobs and incomes. Moreover, many of them have very high levels of excess cash, while the interest rates are so low. It’s a perfect chance they’ve been waiting for. In other words, this asymmetrical distribution of damage to the labour market stands behind the current success of the real estate market.

The downtown condo market is an outlier in this situation. What is happening there? 

The strongest improvement was reported in the low-rise segment of the market. It’s not a surprise, as the nature of the crisis means a lot of people want to live in detached houses. We can see a positive correlation between the inflation rate in housing and the price of housing. Growing prices for detached houses is a disaster for mover-uppers, as the cost of the house they want is growing faster than the cost of their own house. This difference is rising. It’s a reflection of people wanting to live in larger properties and leaving the 416.

Do you think this trend will stay for the long-term?

I think it will continue for the next six months, especially over the winter. The real estate market will weaken alongside the economy, as we have a second wave and the flu season coming. In my opinion, the 416 condo space will be most affected, as the supply goes up, while the demand is dropping. When we reach the other side of this crisis, during the second half of 2021, we’ll see people coming back, as they will realize that a rental space in downtown Toronto is a bargain. Before that, I expect certain adjustment in supply and weaker developers’ activity in winter. So the restrained supply in the second half of 2021 and the stronger demand will also improve this market.

Do you believe the exodus to the suburbs trend will continue?

This trend started long before the crisis, and every crisis accelerates trends. Will it continue? Definitely no. When we are on the other side of this crisis, people will reconsider this approach, and the trend will continue, but not at today’s pace. I think people will return to downtown and the trend will continue but at a much slower pace.

What would you recommend for those who are at the market now? Is it a good idea to wait out?

It depends on what you want. If you’re looking for a quick investment, you can wait. For the long term, the winter will provide good entry positions followed by quite a strong spring market.

And when the vaccine timing is released, how will it affect the market and the economy in general?

It’s one of the reasons why I expect the economy to be very strong over the second half of 2021, especially in the summer and into November, when the vaccine will be widely distributed. It’s one of the reasons of my optimism over the second half of 2021, when the economy will grow by 4%, 5%, 6%, and the real estate market will show improvements.

Is it a good idea now to purchase a downtown condo?

I believe the market is soft now, and it can become even softer. The next few months will be a good opportunity.