With 2021 officially behind us, we wanted to look back on the past 12 months to learn what can be learned and to prepare for the year ahead. We’d also like to shed some light on a common theme you’ve likely heard about in the news and elsewhere relating to a lack of inventory in Toronto… spoiler, it’s only half true, so make sure to read below!
We know you’re all chomping at the bit for the down-low on the dollars, so let’s address prices first. Above is a chart reflecting prices for the month of December over the last five years, for various property types in Toronto.
A few observations worth noting:
1. All property types have recovered and exceeded pre-pandemic price points.
2. Properties at higher price points (detached followed by semis) were most affected by the introduction of the stress test in May 2017, which went into effect in Jan 2018.
3. Condos were the only property type that saw a price decline during the pandemic, a result of a combination of work-from-home policies and the end of Airbnb in downtown condos.
4. Semis have been the most stable and consistent performing property type in terms of price growth. On an annual basis, there are 3.7x times more detached homes sold in a given year than semis.
The Home Price Index provides an apples-to-apples comparison of home prices in the city and reflects a more accurate change in prices. According to this metric Toronto home prices as an average are up +27.65% (YoY). Breaking it down, detached are up +33.43% (YoY), semi-detached +29.34% (YoY) and condos up +22.94% (YoY).
With many people moving away from the core throughout the pandemic, you may be wondering, how has Toronto performed relative to the 905 areas. With a few rare exceptions, the 905 markets outperformed the 416 markets. Although not reflected in the chart above, this has been a trend for several years now, and we believe will continue moving forward.
An interesting statistic to note is that prices of detached homes in Toronto are in line or cheaper than quite a few 905 markets at this point, Durham being the main exception.
As we alluded to above, there has been substantial coverage in the news regarding a lack of inventory in Toronto, including making US news “Canada’s biggest city has just 3,200 homes for sale, an all-time low”. But what does this shortage of inventory actually mean, are fewer people getting into the market as a result?
What’s immediately evident when looking at the chart above is that 35% more people bought a home last year than in the previous 5 years, 18% more people purchased a detached home, and approximately 50% more condo buyers bought in 2021 than the previous three years. We will explore this further below, but these numbers indicate that, yes, there is not enough supply on the market, however, this is a result of increases in demand and not because there are less homes coming to market.
Given the higher number of sales, naturally, we’d assume a higher number of listings to accommodate those sales. Notably, the number of condos coming to market has increased since the start of the pandemic, partly a result of investors exiting the market but also a shift in consumer demand towards larger homes as a result of working from home options.
The main takeaway is that although new listings trended upwards this year, they have not kept up with the immense demand.
So does Toronto have an inventory problem? 2021 had more new inventory (new listings) in aggregate over the year than any year in the last five years. The challenge is that demand has been more fierce than ever before. This is why we as a team believe a lack of inventory in Toronto is only half true.
The more important question is where has this sudden demand for real estate come from and is it sustainable? An initial hypothesis may be that its pent-up demand from 2020 but a quick look at the stats in 2020 shows that sales were down only negligibly for the year (-0.3%).
We suspect the spike in demand in 2021 was a result of a few factors:
1. Increased savings by individuals due to lower spending on restaurants and going out in combination with higher household income. According to TD Bank, consumers have built up $300 billion in excess savings over the course of the pandemic. In addition, the Cad Gov reported that household income is 7% higher than it was pre-pandemic.
2. The government injected billions of dollars into the economy to aid in the recovery from the pandemic. In 2020 alone, Canada’s total money supply grew 27% year over year.
3. Canada broke our all-time immigration record, landing 401,000 immigrants in 2021. This is only the second time immigration has ever exceeded 400,000 since it was founded in 1867.
Is this demand sustainable? While no one can answer this question definitively, we suspect this level of demand will continue into 2022 given an expected 421,000 new permanent residents and a large money supply (consumer savings + continued government spending) searching for yield.