Moving out of cities and urban cores seemed like the perfect decision during the pandemic. Until it wasn’t.
With companies increasingly demanding
more time in downtown offices
, buyers who fled are now facing a difficult decision to move back to the city — one that could wind up being just as spontaneous and costly as their move away.
At the height of the pandemic,
prices soared
across Canada’s largest city, with the Toronto Regional Real Estate Board
reporting an all-time high average sale price
of $1,193,771 for 2022. Just three years before the pandemic, the average sale price for 2019 was $812,996.
Prices rose by nearly 50 per cent in a very short period as consumers, enjoying the flexibility of
working from the homes
to which they were confined, moved further and further out of cores in a trend seen across the country.
It was the age-old suburban versus city debate, with a twist: you traded a bigger house for living further away from the core — but you no longer needed to commute to work.
Now that is changing for many. The Ontario government has ordered its staff back to work full-time, along with many municipalities. Financial services companies have also been announcing that they will adopt a full-time office presence.
Go to an Ontario Public Service online discussion board, and you can feel the panic. Some people have relocated their lives away from the city and face commutes of two hours or more, each way.
Now what? For starters, don’t panic. It’s the worst thing you can do in any financial situation. Emotional decisions are bad decisions.
The issue with
real estate
is that transaction costs can easily add up to 10 per cent of your asset once you factor in realtor commissions, fees, legal expenses, land transfer taxes, moving trucks, and a long list of soft costs.
Jason Mercer, chief market analyst at TRREB said the trend to move to the suburbs or the even more distant exurbs, had started even before the pandemic.
“There were just a greater proportion of deals being done outside the (Greater Toronto Area),” said Mercer. “Some of it just had to do with home prices increasing very strongly.”
But the flexibility of where one physically worked played a role in pushing the trend.
Now that that flexibility is being curtailed, there are early indications of an albeit modest uptick in transactions in the Toronto area.
“It’s hard to eke out whether that is an improvement in affordability, but there are people looking to change their situation (and) living relative to work,” said Mercer.
Moving over to the
rental market
, Julian Schonfeldt, chief investment officer at Canadian Apartment Properties, said the trend was clear during the COVID-19 pandemic: people moved to secondary markets.
“It is completely reasonable to expect that return to office mandates would see the inverse happen and bring … rental demand to urban markets,” said Schonfeldt, whose real estate investment trust is the largest publicly traded apartment landlord in Canada.
The impact on pricing and vacancy, however, remains unclear because a significant amount of supply is being added through the construction of apartments, he said.
Schonfeldt noted that liquidity in the housing market remains weak, so anyone looking at a move is going to face some tough choices if they want to sell.
A temporary decision to rent in urban cores is possible, but it won’t come cheaply. In Toronto’s core, a newer unit could be a $4 per square foot per month to rent.
A 400-square-foot micro condo could cost $20,000 a year to rent, but at least you can stall selling your home until the job market picture clears. Or you can find a more flexible work option to keep that home and avoid commuter hell.
Phil Soper, chief executive of Royal LePage, one of the country’s largest residential brokerage firms, said he knows people who have moved more than 100 kilometres from Toronto, and they are facing difficult decisions today.
“They are all now in
hybrid work environments
,” he said, adding that people are having to make housing adjustments on the fly. “One person, I know, stays with her daughter two days a week. One drives, and it’s bad traffic. They all went out (to far-flung suburbs) during the pandemic, and then the world changed.”
Soper said there was also a trend that saw people move out to their recreational properties, up to two hours away, full-time. “Now they are finding the commute untenable,” he said. “The totally dead Toronto
condo market
isn’t totally dead, especially if you have a parking spot.”
The one upside might be that condo prices have dropped dramatically, so if you did decide to buy a pied-à-terre in the city, it would be at a discount to where we were two years ago.
Giacomo Ladas, associate director of rentals.ca, said the rise of secondary markets helped flatten out rent in metro cores.
“Demand really decreased in major cities, and we would see it increase a few hours away,” said Ladas.
Today, his group’s data show that overall demand, as defined by renters on his site, is down about eight per cent from a year ago. People are just not looking to move that much.
“It’s a question of what happens next,” said Ladas. “We did see an increase in demand for one-bedroom apartments, but it is still too early to tell.”
TRREB’s Mercer stated that consumers will need to conduct a cost-benefit analysis and examine their household budget. “People have to look at the cost of moving versus the economic and social cost of commuting if they lose flexibility,” he said.
With so many moving parts and the future of work unclear, a major economic decision that erodes your equity even further, such as selling and buying, should be pursued with extreme caution.
Figuring an alternative temporary housing solution, an elusive target, could become a priority for many in the coming months.
