Is buying in the suburbs a passing trend or here to stay? In my last article I covered this very topic. This leads into the next topic for real estate investors: the state of the downtown Toronto condo market and opportunities that might exist there.
The downtown Toronto condo market is an interesting topic of discussion to say the least. There have been experts saying that the condo market is overvalued and due for a crash. They have been saying that for years, but so far it’s still standing. With the short-term trend of Canadians moving out to the suburbs (RE/MAX study here), does this present an opportunity for real estate investors to buy for less downtown? Let’s take a closer look.
The state of the downtown Toronto condo market
If you’re a real estate investor, March and April were a worrisome time. When the whole COVID-19 pandemic erupted, none of us knew how it would unfold. There was the potential for rental defaults to really escalate. Thankfully we didn’t see that.
COVID-19 appears to be a blip on the radar in terms of the Toronto real estate market. Home sales and prices keep going up in Toronto in the short-term. But that could change if the trend long-term is to work from home.
The re-sale market
However, while the number of detached homes and townhouses were both up, by 6 percent and 6.5 percent respectively, condo sales were down 19 percent year-over-year in June. Despite fewer condos changing hands, condo prices in the GTA are up. The average condo was selling for $631,704, an increase of 7 percent year-over-year.
This is the resale market. So, how did the new home market fair? Let’s look at it next.
The new home market
While the resale condo market appears to be on the road to recovery, it appears the new condo market still has some way to go.
The new condo market saw its biggest decline since the Great Recession in the 2nd quarter of 2020, according to figures released by Urbanation. Only 1,385 new condo units changed hands in the GTA in Q2. We have to go all the way back to Q1 of 2009 as a comparable, when only 885 units changed hands.
A unique opportunity for real estate investors?
With less interest in the short-term in the condo market, that begs the question, is now a good time for real estate investors to buy downtown?
An off-shoot of the COVID-19 crisis is that money is super cheap to borrow. We’re seeing mortgage rates lower than during the Great Recession. This lower cost of borrowing makes it more likely that you’re able to achieve a positive cash flow with any condos that you invest in.
But just because money is super cheap to borrow, it doesn’t mean that’s a good reason on its own to invest. You have to ask yourself whether the exodus to the suburbs is a just a blip on the radar or whether it will be a long-term trend with many Canadians. Will the factors that previously pulled Canadians to the downtown core and propel the downtown market re-emerge?
If you believe it’s a short-term trend, then it makes a lot of sense to invest in the real estate market. You might be able to get a good deal on a condo, new or resale, right now, and your cost of borrowing is lower than it’s ever been before.
However, if you believe COVID-19 is here to stay and will reshape how Canadians live and work, then you might think twice about buying downtown.
My money is on the former, not the latter, but it’s up to you to decide.