It’s been a rough year for Toronto’s condo market. What are experts’ forecasts for 2021?

As a rule, Christmas is a dead period for housing market, but this time, real estate brokerages were quite busy. It could mean Toronto’s condo recovery is on the way.

In 2020, the single-family home market has shown strong sales and price growth as buyers were looking for more space to work and study. Meanwhile, Toronto’s condo market has slowed down with lower rents and a wave of listings, especially in case of smaller units downtown.

Nevertheless, according to Realosophy president John Pasalis, there are certain signs that condos will show stronger activity again, and agents are seeing a significant increase in investor interest.

“We can see more people now who want to buy an investment condo today — people who were not investors earlier. They purchased a house about four years ago and now they see condo prices going down. They want to benefit from this chance,” – he noted.

“As condo prices are falling (by 10% in the core), listings are growing, bidding wars are not that widespread and interest rates are about 1.5%, investors are showing stronger interest”, – said Pasalis.

Shaun Hildebrand, president of market research firm Urbanation, says condo prices will go up by 4% per square foot in the Toronto area in 2021. This year, it was 9%, and the increase was mostly pushed by price growth of 15-18.6% from January to March.

In Hildebrand’s opinion, the growing prices for single-family homes will also make more buyers return to the condo market.

In November, the average price gap between condos and detached houses reached $596,000. In case of condos and a semi-detached or townhouses, it was almost $217,000. Both results are at their second-highest levels since the market peak reported in late 2016-early 2017.

According to Christopher Alexander, Re/Max executive vice-president, condo prices will start going up in January. Later, the rollout of COVID vaccines will attract immigrants and students into the rental market, thus making this segment even more attractive for buyers.

Returning immigrants (Ottawa predicts 401,000 next year) and international students are expected to lead to a 0.5% increase at condo market for 2021, says Royal LePage’s CEO Phil Soper. As a result, the benchmark price will reach $600,800.

“Immigrants tend to rent, and they prefer condos. Half of them choose Toronto. This funnel was closed for several months,” – he added.

In addition to it, Soper believes investors will return in 2021, despite a future vacant homes tax and new short-term rental rules. Canadian condo investors have been small entrepreneurs with one or a few units for 25 years already.

“They tend to seize the opportunity,” – said Soper. “They are used to making quick decisions. They are driven by the same low cost of financing that drives buyers looking for their first property”.

They will search for the smallest signs of positive trends and jump into the market in a moment, he explained.

Pasalis expects investors to push prices up even in case rents are still low. However, low rents and the on-going competition among tenants still could discourage investors from bidding wars if they see they can’t cover carrying costs.

Urbanation’s report for the third quarter report shows condo rents were down by 9.4% annually to $2,249.

Forecasts from the experts:

Rental market:

In 2020, condo rents showed a 5% drop in the GTA, but Hildebrand believes they will go down by 15% downtown. In his opinion, rents will start stabilizing in 2021 with a 1-2% gain across the region by the end of 2021. The rental market will start stabilizing as soon as vaccines let immigrants and students return in Toronto.

“Toronto has faced such a strong lack of rental supply for so many years that we’ll see new renters appearing out of nowhere”, – noted Hildebrand.

He says new condo supply online will soften it in 2021. Another 22,500 units are expected to be completed in 2021, which is slightly lower than 23,000 seen this year. Most of them were reported near universities and the financial district, and 8,000 completions were downtown. Next year, the number is expected to reach 5,500.

According to Hildebrand, in 2021, condo completions will be spread more across the region.

The 905 area:

The current tendency of a stronger performance in the 905 area is expected to continue in 2021, says Hildebrand. New condo sales hit a record high level in the 905 in Q3 due to demand switch towards suburbs.

Micro-condos:

There’s been a lot of discussion concerning the pandemic hitting the micro-condo segment in Toronto.

Hildebrand believes condo buyers who want to get a bargain downtown should focus on small units in tall towers.

No one knows exactly what will happen when people return to offices. However, it’s possible that working from home for at least some of the time will be a long-term tendency.

“If you’re working from home, 450 sq. ft. will not be enough for you,” – noted Pasalis.

Micro-condos were least popular this fall.

And Hildebrand shared this opinion.

“People who were living with roommates, parents, in a basement apartment because of affordability issues are facing new opportunities right now,” – he added.