Toronto Real Estate Half Year Recap 2021 & Second Half Market Outlook Forecast For Q3 & Q4!

Toronto Real Estate Half Year Recap 2021 & Second Half Market Outlook Forecast For Q3 & Q4!

2020 was wild but the first half of 2021 might have even outshone last year on the real estate side. In this video, I’m going to summarize everything that’s happened in Toronto real estate for 2021 Q1/Q2 and give our forecast for the rest of 2021.

2020 Roundup

At the end of 2020, Toronto freeholds was also doing pretty awesome despite COVID. Detached properties ended up 8% year over year and semis up 15%. Unfortunately, Toronto condos did get hurt and ended the year down 5% for two main reasons:

  1. Landlords with long term rentals wanted out because of lack of office renters
  2. Airbnb landlords also wanted out because Toronto got rid of short term rentals entirely.

2021 Q1

Typically Spring is the busiest season for real estate but the main theme for Q1 this year was “Spring came early”. Even though home buyers continued to get all time low borrowing rates, we were hearing record inflation levels that were about to come in the news. This convinced many more buyers to get into real estate sooner so they can lock in the lower rates.

On the supply side, we were still in lockdown in January and the most of February, so not as many sellers were putting up their properties for sale. When you combine lower supply and higher demand, prices shot up across the board in Q1. The strong thrust in prices obviously made news headlines again and so there was a lot more FOMO in the real estate space which caused more buyers to enter the market and kept pushing prices higher and higher

Our team saw a lot more bully offers, lots of bidding wars, and prices selling for way over ask. Luckily more inventory came on the market in March and that helped to clear some of the backlog of demand from January and February.

Detached properties in Toronto ended the quarter up 18%, semis up 11%, and condos up 13% so condos finally moved back to prices seen at the peak in early 2020.

2021 Q2

Because spring came early, the real spring was in a period of “consolidation and observation” this year. Right at the start of the quarter, we heard news of stricter stress tests to come in June. In reality it only reduces borrowing capacity by 4.5% but psychologically that was enough to put the brakes on the strong buying momentum. Other news also helped slow things down, which wasn’t a bad thing because the price increase in Q1 wasn’t sustainable or good for anyone.

Are we in a bubble? Did demand get pushed forward? Is inflation not actually as crazy as expected?

We saw lumber prices go up 240% and then come back down as quickly as it went up, so maybe interest rates won’t get hiked sooner than the 2023 expectation. Because of that, more buyers thought that they don’t need to rush into the market as quickly after all.

All of these things helped to cool the market, and so Toronto detached prices fell 3% from April to June, semis fell 2% and condos actually did the best up 1% in Q2.

2021 Q3 & Q4: What To Watch Out For

Here we are now, Q3 of 2021, our “normal real estate summer”. Most of our population has already had their 1st jab, many their second, COVID numbers are dropping and we’re finally reopening. And because we’ve been locked up for so long, everyone wants to go out and about and not buy stocks, crypto or real estate. Right now, there’s a lot less listings but also a lot less buyers.

We expect the summer real estate market in Toronto to continue to be slow and stable until September when things start to come back. Typically, the real estate market gets a hotter quarter followed by a slower one before another hot quarter comes along. This year, we had an amazing Q1 followed by a slower Q2 and Q3 so we expect the attention to finally come back to real estate in Q4.

But remember, we’re still not completely normal so here are some of the key things that you should watch out for which might drive real estate prices one way or the other:

  • Rental Rebound: Some universities are bringing back full time in person classes, and immigration is slowly coming back, so this means Toronto landlords are expecting a busier fall rental season this year. We saw a big dip in rents of 15-20% since COVID, and if we see a quick rebound in rents in the fall, then this will create news headlines again and attract more real estate investors to want in on this Toronto rental recovery action.
  • Stock & Crypto Markets: Keep a close eye on other markets. When there’s higher volatility and potential for gains in the stock or crypto market, real estate is going to get a bit less attention. But if recovery stocks stabilize, tech continues to stabilize and crypto stays quiet, then more people will look for alternative investments and real estate might get more of a spotlight. Where else can you get stable double digit annual returns?
  • Jobs & Inflation: If there’s signs that inflation is coming earlier, real estate buyers might again be tempted to push forward their buying to lock in low rates sooner, so we’ll see a spike in demand.
  • COVID Numbers: If we see a spike in COVID especially with the delta variant (I really hope not), then supply might dry up again which can be the recipe to take prices higher in Q4.

Q3 / Q4 2021 Forecast

Just for fun, I did a forecast for where real estate prices and sales might go for the rest of the year, based on seasonality trends from 2010 – 2019. In a normal year, sales and prices normally are the highest in the spring months peaking in May and then we typically have another hump in the fall peaking in October.

Assuming we’re becoming more normal and starting to mimic long term trends, here’s where we might be for the rest of the year. Based on historical trends, we might see prices go a bit lower in August before turning around. We’ll see prices continue to go up and peak in October, up 3% from today’s prices and then prices will stabilize again by year end.

How We Can Help

Because we’re in a slower market right now, if you find a great deal, you might be able to get an even better deal now compared to a few months ago because there is less buying competition and more bargain power right now. And if you also think things are going to pick up again the the fall, then you’ll benefit from lower prices than what you might be getting in a couple of months.

If you need help with real estate investing in Toronto, remember our Elevate team is ready to help you out. Just reach out to us!

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