REAL ESTATE CONFIDENTIAL What Happened to the Real Estate Market Beyond Toronto, and Why?

Richard Stewart, LLB, LLM, Vice President, Legal Counsel, Broker, is a lawyer who has practised in both the private and public sectors. Richard contributes additional depth to the Chestnut Park’s leadership team by ensuring ongoing accessibility to legal counsel and assistance on professional and practical issues that arise in the course of real estate transactions.

What Happened to the Real Estate Market Beyond Toronto,

and Why?

One of the most significant health crises to confront humankind in a century prompted seismic shifts in buying patterns and behaviour, forever changing recreational, rural and hybrid real estate markets.

While these changes are not news, a lot of other things have changed over the last year and a half or so, and many aspects of life are either fundamentally different or no longer as relevant. Specifically, the restrictions and safeguards imposed to address the threat posed by the coronavirus pandemic have resulted in a collective loss of innocence. So many of the activities and routines that we took for granted, and so many of the touchstones and points of reference by which we measured our lives, such as travel, entertaining, cultural and sporting events have either been prohibited, suspended or fundamentally altered in one form or other. With the threat of infection and illness combined with the consequent disruption to traditional working arrangements tied to bricks and mortar workplaces, life focus shifted ever more acutely onto the importance of hearth and home and domestic life.

As a result, a renewed emphasis was placed on the need for sanctuary, health and safety, space and access to the outdoors. Proximity to urban centres and all the associated attributes that traditionally attracted many to live in the downtown core and consider issues like walk scores, easy access to work, restaurants, theatres, galleries and public transit became not only much less important, but also potentially negative given that these things are usually associated with density and close interaction with others. The impact of this profound shift in priorities prompted many to reconsider their living spaces and chosen locations. Needless to say, and as is inevitably the case, the critical issue of affordability was also very much a factor in the mix.

Not surprisingly, the focus of many shifted to the suburbs where buyers could get more living space on bigger lots, with easier access to the outdoors for less money than in central urban cores. This trend was supported by greater locational flexibility given that the physical ties to workplaces in many instances had been loosened through remote working arrangements brought on by the pandemic, and facilitated through the advance of technology.

Given this evolution, many took it a step further and considered moving even further afield to take advantage of greater lifestyle opportunities and in some cases transforming what might have initially been exclusively a recreational property purchase to what they might now consider to be their primary residence, or some hybrid thereof. In addition to that, many who had been accustomed to travel for their holidays and leisure activities were now considering, for the first time, the advantages of securing a recreational or holiday home of their own in their own backyard, so to speak, where they could pursue rest, relaxation and sanctuary without worrying about international border crossings and the risks and complications of restricted commercial travel options. This at least provided lifestyle options with ease, reliability, dependability, and security.

After people began to emerge from the initial lockdown in the early spring of 2020, and adjust to their new reality, many potential buyers did in fact shift their focus from downtown, or more urban property choices, to more rural and recreational ones. The impact on these markets was profound. The surge in interest prompted by many trying to take advantage of the newly highlighted attributes of these areas brought into focus by the pandemic, compounded by the advantages of greater comparative affordability, precipitated a massive jump in interest and activity. Supply simply could not keep up with this sudden and seemingly unquenchable Not surprisingly, prices in more rural or recreational markets, which had traditionally avoided the volatility and affordability challenges experienced by urban markets, followed suit.

There is no question that the renewed interest and consequent heightened activity in these “secondary” markets had already begun prepandemic. Anyone following the news over the last few years is well aware of the challenges that many families and new home buyers have been facing for some time in getting into the real estate market and securing the homes of their choice. Given robust economic and population growth spurred by strong migration patterns, larger urban centres across Canada, where much of the economic activity is centred and consequently many families choose to settle, have been experiencing an ongoing housing crisis in which supply simply cannot keep up with demand. This has resulted in increasing affordability challenges for many, and has prompted government intervention in several markets to address the disparity between supply and demand, and the fact that an ever-growing number of families were being pushed to the sidelines, unable to find properties they could afford.

It is not surprising that, as this trend continued, potential buyers were forced to look further afield to find properties that they could afford. This inspired the expression bandied about in real estate, “drive ‘til you qualify.” The pandemic and all of its side effects simply accelerated a trend that was already in place. But the extent of this shift and the lasting impact on these communities and their residents cannot be over emphasized.

In the Greater Simcoe Region for instance, an area just north of the outer boundaries of the Greater Toronto Area comprised of a hybrid of urban, suburban, and recreational property types including the area around Lake Simcoe (still largely within commuting distance of the city), the shift in buying patterns, activity and prices over the last two years has been seismic. In March, 2019, the average sale price hovered slightly above the $500,000 mark with sales of over 600 properties per month, increasing as the selling season progressed. One year later, as the market was starting to grapple with the initial lockdown caused by the onset of the coronavirus, monthly sales had increased to approximately 650 properties and the average sales price had risen to almost $540,000. Activity ground to a halt as the pandemic first took hold, but then started to rebound in May, 2020, and then caught on fire in June fuelled by the search for more space, access to the outdoors and related shifting priorities and new reality brought on by the pandemic. In June of last year sales had surged to well over 1000 properties per month, and average prices climbed to over $580,000. While supply increased as well, with sellers keen to take advantage of the bump in demand, the market became increasingly tight. >>

Many potential buyers did in fact shift their focus from downtown, or more urban property choices, to more rural and recreational ones.

Except during the darkest period of the initial lockdown, sales ranged between 30 and 40 properties per month across Prince Edward County, which, while well known, is in fact a relatively small trading area. Wellington Beach in Prince Edward County. Photo by Taylor Nullmeyer

This trend continued throughout the rest of 2020 and into 2021, with sales peaking in March at well over 1300 properties and average prices continuing to rise through May and June where they broke through the $800,000 threshold for the first time. These statistics are truly jaw dropping and, as indicated, the impact on the market is profound. Setting aside the initial months of the lockdown when virtually all activity ground to a halt, over the period of two years the pace of sales virtually doubled at its peak and average prices soared from just over $500,000 to over $800,000, an increase of approximately 60%. While both prices and activity have pulled back somewhat, these numbers vividly illustrate the effects of the pandemic as well as the shift in buying patterns over a brief period of time. Needless to say, incomes have not kept up with the surge in property prices.

These same trends have played out in similar ways in other rural, recreational and hybrid markets across Southern Ontario. While it is not possible in the course of this article to cover them all, in order to paint a picture and highlight the breadth and magnitude of this phenomenon, I will review two very popular areas within a couple of hours of Toronto which have been characterized as personifying this trend, namely Prince Edward County and the Western District of Southern Georgian Bay encompassing Collingwood, the Blue Mountains and Clearview.

After years of relative stability and only incremental and gradual price movement, the average sale price of a property in Prince Edward County hovered around $400,000 in early 2020. Except during the darkest period of the initial lockdown, sales ranged between 30 and 40 properties per month across Prince Edward County, which, while well known, is in fact a relatively small trading area. Once the impact of the pandemic kicked in, sales and prices took off. In June, 2020, the number of properties recorded as sold increased to almost 80 and then surged further as the season moved into summer with over 140 recorded sales. Average prices in turn surpassed $500,000, and then broke through the $600,000 mark as the year progressed, and then by year end strained beyond reason towards the threshold of $800,000, almost doubling in over a year and a half. As in many markets across Southern Ontario, both sales and prices have pulled back somewhat after months of frantic activity and record smashing price increases, but the market remains very tight and definitively transformed from what it was before the pandemic with a whole new demographic and cross section of buyers eager to get a piece of “the County,” with average sale prices hovering now around the $700,000 range.

The Southern Georgian Bay area tells much the same story. While for many of the same reasons that market has been on the rise over the last few years (following a similar extended period of relative price stability as Prince Edward County), the pandemic turbo-charged what was already a gathering trend. In the months immediately preceding the onset of the pandemic in the early spring of 2020, sales ranged in and around 150 properties per month, with an average sale price around $600,000 give or take. Once the market emerged from the lockdown a couple of months later, the same trend resulting from the shift in priorities and post Covid reality came into play in earnest. Sales for all intents and purposes doubled and more, and, as a result, prices were dragged upward at an unforeseen pace, peaking in May of this year at an unimaginable average sale price approaching $900,000.

As indicated, and consistent with the above, the market has pulled back somewhat, due to absorption, buyer fatigue, the lifting of restrictions and re-opening of society, allowing people to turn their minds to other things and imagine some return to normalcy approximating the lives they had before the pandemic.

Needless to say, another moderating factor is the dramatic impact on affordability brought on by a year of frantic buying. Despite the continuation of low interest rates and cheap financing, incomes have not kept up with the leap frogging cost of purchasing property in these now highly desired “secondary” markets.

The impact on those who are not in a position to leverage their purchases with the sale of higher priced homes in the urban core has been devastating, and many have found themselves priced out of the markets in which they have spent their whole lives. Residents in these markets are not used to market swings of this magnitude, but are accustomed to much more stable markets where properties traditionally sit on the market for months and purchases are negotiated over time with compromise and give and take on both sides.

Suddenly they have been catapulted into a new reality, forced to compete for properties that are flying off the shelf in multiple offers for huge premiums after being on the market for only a matter of days. Many were forced to consider options ever further afield creating ripple effects in markets such as North Bay and Timmins, and even out of province in the Maritimes and beyond.

With the roll out of vaccines and the phased provincial reopening, there was a sense of optimism that life might return to some semblance of normal with renewed attendance at cultural, sporting and social events and a restoration of life as we knew it in urban centres. Businesses too began to plan for a return to the office and in-person work schedules. That, mixed with the warmer weather and many simply wishing to change the channel and recover from the trauma and stress of navigating and coping with the coronavirus over the previous year were likely factors contributing to the market pressing pause. People might simply have wanted to take a breath to regain their bearings and assess prospects for the future to the extent possible under all of the circumstances. With that in mind, it is interesting to note that as the market has moderated, one of the notable exceptions to this trend is the condominium market which has seen a renaissance of sorts since the new year.

While this market in the urban core had been hardest hit by the “pandemic syndrome” of people wanting more space and access to the outdoors, as vaccines were administered with the hopes and promise of a return to normalcy being top of mind, buyers re-engaged with this market, made all the more attractive by virtue of its perceived value given the price correction and the commensurate unaffordability of other options. In the face of all this, the question for many was whether getting a handle on Covid-19 and the further re-opening of society would put a halt to current real estate trends and result in what could be described as an elastic effect with a rush back to urban centres and consequent unloading of at least a portion of the properties that had been purchased in “secondary” markets during the pandemic, as travel once again became an option and employees jockeyed to return to the office and all of the attractions that lured so many to urban life re-opened once more.

As most have come to realize, however, there are so many moving parts to current conditions over which no one has control to be able to predict anything with any certainty. Indeed, the fourth wave of the coronavirus is very much a factor. It is not by any means clear how this will play out in the context of ongoing vaccinations, stemming the spread of the new virus variants, and how society will be able to negotiate further re-openings, and any definitive return to the world that we knew before Covid-19.

One thing that is clear, however, is that society simply is not, and is unlikely ever to be, the same again after what it has gone through over the last almost two years. As I stated at the outset of this article, there has been a collective loss of innocence, and a sense that it might never be possible to take for granted again many of the activities and things that were considered to be a given before this pandemic. The renewed importance of sanctuary, safety, health and security is unlikely to go away any time soon, and many may be reluctant to give up their new lives or habits in exchange for throwing their eggs back into the one old basket with which they were once familiar. The world has changed and the ongoing advances of technology continue to expand the range of activities and pursuits that can be done remotely, giving homeowners ever-increasing flexibility to live where they wish without the traditional constraints to which they were once bound. People may think twice before giving up their new, more flexible and integrated lifestyles where the division between work, leisure and home life has been blurred, and where all things home related have taken on priority status.

In short, while the revolutionary change and seismic shift experienced by “secondary markets” may subside and calm somewhat after the frenzied pace of the last year or so, the world is not the same place as it was, and it is not going back. Accordingly, it is safe to say that these secondary markets have also been irrevocably altered and will reflect that in both activity and price point. Affordability and supply will remain challenges moving forward in response to this behavioural and lifestyle shift.

Businesses are begining to plan for a return to the office and in-person work schedules. Many are simply wishing to change the channel and recover from the trauma and stress of navigating and coping with the coronavirus over the previous year.