A recap of the pandemic real estate market, current trends, and moving forward
Real Estate Q&A with Toronto-based Professional REALTOR®, Pritesh Parekh
Pritesh Parekh is a Toronto-based Professional REALTOR® with Century21 who brings over 10 years of practical real estate experience and works with clients across the GTA. Pritesh provides real estate market commentary for Global News, CBC, and the Globe & Mail.
Q: What pricing trends have you seen in the past few years?
A: The past few years have been very unique for the Toronto real estate market. Looking back, it's interesting to see how a global pandemic actually saw home prices rise, rather than decline with all of the uncertainty that was taking place in the world. In terms of a trend, home prices rose consistently and drastically during the pandemic period from 2020 to 2022. In fact, the rise in average Toronto home prices was unsustainable.
Q: Why do you think prices went up so much during that time?
A: There are several reasons. For one, interest rates were at an all-time low. The cost of borrowing was so low that, for many, it seemed like a no-brainer to leverage the bank's money to purchase a home that would eventually yield capital gain. Second, given lockdowns and restrictions, house-shopping went higher on the list of things to do. For some, it was just a good time to spend effort on real estate decisions; this increased buyer demand. Third, the pandemic saw a lot of people with changing circumstances for work and life. This meant that people wanted to move: a great example was a large portion of the population moved from condos into houses, for additional space to work from home. Of course, there were many other factors in play, but these are some of the reasons that prices increased during that time.
Q: What has happened with prices this year, and where will they go?
A: This year, the peak for home prices was in February 2022. From there, the average house price in the Greater Toronto Area has declined month-over-month. Prices went up too much, too fast, and now we’re seeing declines. In terms of where they'll go -- well, nobody can predict the future. But, from here, a lot of it will depend on the actions of the Bank of Canada and their interest rate moves. I think there is certainly room for prices to cool further, but it's hard to say exactly when they will stop declining. Soon, people will acclimate to the new water level of home prices and interest rates, and activity will pick up once again.
Q: On the topic of interest rates, how will property owners be impacted by the recent increases?
A: The more immediate impacts will be for those on variable mortgage rates, rather than fixed. To be even more specific, there are two types of variable mortgages: fixed-payment and non-fixed-payment variable rates. It's very important to speak to your mortgage professional about which one you have. If you're on a fixed-payment mortgage, it means that the lender will put more of your payment toward the interest, and less toward the principal. In this case, you will not pay more out of your pocket, however, it effectively increases your amortization period. If you're on a traditional variable mortgage, you may have to actually put in more money to make your payment. Again, speak to your mortgage professional to learn how this impacts you, fully.
Q: What would you say about all the scary headlines that we’re seeing in the news lately?
A: News headlines are created to get clicks and viewership, so take them with a grain of salt. And, I can say this from experience, having had regular opportunities to speak to the media, they really do prefer content that may be more drastic than what is actually happening.
For example, there are many headlines right now about home prices dropping and a pending crash. This can be scary if you're in the middle of doing a flip project, but if you're holding for the long term, it's likely something you don’t have to worry about, as much.
My best advice is to speak to a professional REALTOR® about what is actually happening in your neighbourhood and with your home type. People call me all the time with questions and I help break things down into real terms so I can help them make strong decisions, rather than relying on news headlines that are often generic and sometimes skewed. So, feel free to call me or speak to someone who you are confident is well-versed in the current market dynamics.
Q: Is it a good time to grow a real estate investment portfolio?
A: If you are a real estate investor, and you can have funding for another project, yes, it could be a good time for you. A very important factor is your time horizon. Prices have cooled down in recent months, and if you're planning to hold for 5-10+ years, it could pay off to add to your portfolio. This is not real estate advice, as of course, there are many factors to consider. However, I am speaking to a lot of clients that are finding great buying opportunities currently. I help my clients determine, based on their needs, if it might make sense to pull the trigger or wait.
Q: What have you seen on the rental side right of the market?
As workplaces begin to re-open for in-office work, there is a natural desire for more people to want to start renting again closer to the Toronto core. In addition, higher home prices and interest rates have challenged some would-be homebuyers. This has led to a recent supply-demand shift causing higher rental prices in the Greater Toronto Area. If you are holding a rental property, this could sound like good news, just make sure to also understand how costs have been impacted to get a full picture of what it means to you. If you're a property owner searching for a renter, learn more about how Rhenti's marketing and leasing tools help you find the right-fit renter.
For more information on Ontario real estate market trends, reach out to Pritesh directly by visiting www.pritesh.ca.