Today's post comes courtesy of Ray Adelson, Broker at HomeLife/Cimerman Real Estate Ltd., Brokerage.
The greater Toronto real market seems to have had an extremely busy period from December to now. It is reminiscent to the 2017 period where properties were selling at higher prices by the day. Now we have the coronavirus which started a few months back and in the past weeks has hit the rest of the world hard. If we look at the global stock markets, they are being slaughtered and the Toronto stock market along with them. Today, as I write this article the stock market is in the green. The volatility will probably continue until time it levels off, then begins the march back up. Talk of supply train breakdowns, toilet paper and water hoarding, interest rate declines illustrate the uncertainty most of us are feeling.
So how could coronavirus affect our real estate market?
The truth is we don’t know if it will or will not affect it. Time will definitely tell. We can only make assumptions based on history and logic.
As more companies are telling their employees to work from home or if an employee has any flu like symptoms do not come to work and self quarantine to prevent the spread of the virus. If this becomes an extended time frame, will employees wages continue or will people be laid off without pay? This could affect the ability to pay monthly mortgage obligations or savings for a down payments.
Other concerns are the big banks and government offices who employee thousands. If they are forced to close, how will mortgages be approved, mortgage funds transferred to the lawyer, pre-approvals for mortgages, appraisals, meeting with the lawyer to sign the paperwork, transfer title, and this list can go on and on. There are a lot of moving parts in a real estate transaction. Hopefully, contingency plans have been put in place.
On the flip side, if someone is buying a principle residence for the first time, it shouldn’t matter much as everyone needs a place to live. If the prices do go down, history has shown that they will always increase to even higher amounts. If the cost of renting is within $500 to $700 of your new payments, it is about the same as a mortgage is made of an interest and principle component. With today’s low interest rates of under 3%, approximately 50% of the mortgage payment in the principle component (run an amortization schedule to determine the exact amount). Pay your own mortgage down, not the landlords.
If you are looking to upgrade your property, in other words a move up buyer, the price of properties is even less important. It is all relative. Sell high, you will buy high, sell lower and you will buy lower.
If you are a real estate investor, should you sell now? I say no unless for personal reasons you need to. There will always be a need for rentals and the rents don't generally go down so if the rent is covering your expenses and you do not need to sell, my opinion would be not to sell even if on paper the prices decline by 10% or more. If the prices do indeed decline (and interest rates have been going down as well), set yourself up to buy another one. We do not see very many buying opportunities in the GTA and if there is one, be ready. That is what I will be doing.
Wayne Marks, an independent mortgage agent says this; “I think as long as people have jobs and can go to work, the real estate market will remain hot, especially with rates going down the way they have. Also, if we think the inventory is low now and if the virus impacts the market negatively, that would mean even less homes would be on the market, making the prices increase or people will just pull their home off the market completely.”
We don’t have a crystal ball to predict the future. Maybe sellers decide not to list or take their properties off the market, reducing the inventory, thus, keeping prices stable or even increasing. Maybe people will be forced to sell their properties to cover stock market losses or just to live on. Time will tell. Whatever you believe, the greater Toronto real estate market is still one of the best places to be in regardless of everything else. History has proven that. We can never time the market.
Stay positive! This will be short term. Wishing everyone a healthy future!
Ray Adelson is a seasoned professional real estate broker with more than 25 years experience. As a member of Homelife/Cimerman R.E. in Toronto, he has collected many top producing awards. If you have any questions or comments, feel free to reach out to him.