Earlier this week, the Toronto Real Estate Board released its market report for March 2020, which includes information about property transactions in the GTA. As Covid-19 keeps locals on lockdown and nearly halts the economy, most people are wondering how significantly the virus impacted the real estate landscape. We spoke to Jason Mercer, TREB’s senior market analyst, about how Covid-19 killed a red-hot market and why there’s reason for cautious optimism.

Could you summarize the Toronto real estate market before the Covid-19 pandemic? 

Right into March, we saw a continuation of 2019, when a lot of buyers who had previously moved to the sidelines were starting to purchase homes. The market had tightened, meaning increased competition among buyers and a high volume of listings resulting in sales. Those factors typically lead to an acceleration in price. For the first half of March 2020, sales were up 46 per cent over March 2019. For historical context, the Toronto market peaked in 2016 with a record 113,000 sales. Then, in the first quarter of 2017, the Fair Housing Plan came into effect, which included a 15 per cent non-resident tax and expanded rent control. That was followed by the new OSFI mortgage stress test rules in 2018, which made it more difficult to borrow. So for the better part of two years, we saw a dip in sales as a result, which is often the case when government policy targets a certain sector of the economy. But demand accumulates over time. After that, you get a return to the marketplace in fairly strong numbers. That’s what we saw in early March.

A month ago, TREB issued a report predicting 97,000 sales in 2020. Is it safe to assume that you’d like to amend that estimate? 

Yes. That prediction came out on February 6, so that’s what we forecasted then, along with $900,000 for the average price in GTA, Halton, Peel, Toronto, Durham and some of the smaller municipalities. That’s for all home types including condos. We were well on the way to that sales figure, if not higher. Then, in mid-March, when serious measures were taken across Ontario to prevent the spread of Covid-19,  we saw a major shift in market activity. We haven’t updated our predictions yet. We’re only a couple of weeks into the period of enforced social distancing, so we need a little more time to evaluate what’s happening. When we’re midway through April, we’ll be able to provide a more accurate forecast.

In the meantime, which market indicators are you keeping an eye on?

I’m looking at the health-related forecasts, specifically those that look at how long we’ll be social distancing. There was a piece in the Globe recently, based on research out of Simon Fraser University, which laid out some predictions. Last Friday, when the premier gave us the predictions on health outlook, there was a considerable range: between 3,000 and 15,000 deaths, depending on how successfully we self-isolate. So that’s what we’re waiting to see. If you look at the greatest driver of economic growth in Canada, it’s the consumer sector. At the moment, health is the major concern, but once we get on the other side of this, consumers are going to want to dip into the marketplace again, whether that’s going out to restaurants, shopping or resuming their search for a home. The recovery for this will likely be quite fast. It’s just a matter of when that recovery will start.

I like your sunny outlook, but what about all the consumers who go several weeks or months without earning an income?

Certainly, a lot of households are going to feel the pinch from an income perspective. That’s just another factor that depends on duration. Where we may see some differences here compared to a traditional recession is the way the federal government has acted quickly to account for some of the lost wages. A lot of companies are taking advantage of the 75 per cent top-up. We’ve seen that with Air Canada, where they were able to rehire a lot of employees. The point is: there are more programs in place to help people get through this.

Before Covid-19, the biggest issue with the Toronto real estate market was that supply couldn’t meet demand. Is that still the case?

Right into early March, we saw sales growth overtake listing growth, which meant conditions were getting tighter and prices were accelerating. In the second half of the month, we saw a dip in both sales and new listings. When you look at it on a year-over-year basis, both were down by a similar amount. That means the relationship between buyers and sellers has remained consistent—there’s still a similar number of people interested in each individual listing. If that continues, prices might remain relatively stable.

And if it doesn’t, is there a possible silver lining for buyers looking to break into the previously impenetrable Toronto market?

If listings increase and sales flatten or go down, buyers are going to have more negotiating power, but right now it doesn’t make a lot of sense to be out there buying. I think we’re still going to see people taking a wait-and-see approach. The case may be that people want to take advantage of the change in market conditions, but it’s hard to do that when people are being asked to stay at home.

And yet your latest report shows 3,300 sales happened after Ontarians were asked to isolate at home. What does that mean?

I think it’s likely that a lot of those deals were already in progress before self-isolation measures were implemented. We’re going to have to wait until April to really get a sense of the market under strong social-distancing orders.

When the market does come back, is there any type of buyer who may be particularly well-positioned?

I would say first-time buyers may have a possible advantage, in that they won’t have to worry about selling, so they’ll have greater flexibility and could potentially move in right away.

Any predictions on what’s going to happen with mortgage rates in the next six months? The next year?

In the short term, I’d imagine the Bank of Canada will be holding firm until recovery is well under way. The impact on variable rates is likely that they’ll remain somewhat flat, at very low levels. Fixed-term rates are more based on yields in the bond market. From a short-term perspective, right now, rates are low. Considering it’s a tough time in the economy, expect to see rates remain low as we move into 2021.