August 2011 - Sales Commentary
August was another strong sales month in Toronto. The Toronto Real Estate Board (TREB) reported 7,500 in sales – 24% higher than for August last year. In the total condo market, sales were ahead by the same percentage. However, Downtown condo sales were 30% higher. What is more impressive is that the sale-to-listing ratio went up from 34% a year ago to 42% this August in spite of more product. A balanced market – between buyers and sellers – is usually 25-35%.
The real question for many is: how will this market perform going forward? We are expecting about 7,000 sales in September. While this will be down from August, it is consistent with the seasonality of real estate sales. October is usually the largest sales month in the fall. If you want an early indication of the market for 2012, just watch the numbers for October and November for a clue.
But for most people it is all about the prices. While we hate talking in generalities about prices per sq. ft. for the overall market, our feeling is that prices are about to level off. In the condo market, there are really two markets. The pre-construction or new condo market is fuelled by investors who then rent or resell their units into the resale market for end-users which gets reported as TREB sales. Investors are only concerned with prices and our new projects are now approaching the $600-700 per sq. ft. range. Only ten years ago we were talking $300. On the other hand, New York prices have been at the $1,000+ range for several years and are not moving much. We all like to compare ourselves to New York but we are not New York in terms of either money or appeal. Resale prices are always lower – today about $500-600 per sq.ft. Investors only buy if they believe they can sell for more later and the price difference with New York is now quite small. And if pre-construction does not move higher, then neither will resale.
So let’s look at actual prices in the Distillery District. – just east of Downtown. We selected a building that appeals to people who like the soft loft feel and has minimal amenities, which keeps condo maintenance fees low. The building is 80 Mill Street and with 1965 units, has a good sales history. The first unit we tracked was a one bedroom plus den with balcony and no parking. At 640 sq. ft., it sold for $303,000 in June of this year. That’s $473 per sq. ft. The same unit sold in 2007 for $237,000 and in 2006 for $223,000. The price gain is 36% over five years. The second unit was bigger at 974 sq. ft. It is two bedrooms two baths, with den and parking. It sold in August of this year for $435,000 or $446 per sq. ft. The same unit sold the year before for $395,000 which represents a 10% increase. So why are these units selling below the $500 per sq. ft number? First the east side of Yonge St. has historically sold for about $50 per sq. ft. less than the more popular west side of Yonge. The building is also ten years old and has limited amenities which eliminate a lot of first time buyers.
People renting in August are now looking to the fall market. The lead time from renting to occupancy is about 45 days on average. In August the downtown condo market leased out 19 studios, 256 one bedroom units and 174 two bedroom units. This was about 20% lower than in July. Studios were renting for $1275 per month. The entry level for a one bedroom unit without parking is now $1500. The most popular unit is a one bedroom plus den with parking which now rents for about $1725 on average. Two bedroom units start at $2,000 per month and rise to over $2500 on average for two bedrooms plus den and parking. If you can find a three bedroom unit (three were leased in August), you can expect to pay over $4,000 per month.
July 2011 - Sales Commentary
We have reached the midpoint of the year with June sales on TREB ahead 21% over June of 2010. On a year-to-date basis, sales are still 4.5% lower than a year ago. Condo sales were also up 23% over June of last year and downtown condo sales were up by 25% over the same month a year ago. On a year-to-date basis, downtown condo sales are actually up 1%. But the real story this year has been a reduction in active listings by 24% over the same time last year. Even in the downtown condo market, active listings are down 3% from June 30th of last year. And that is after we have had several thousand new condo units being registered this year. What is happening is that theseunits are either being sold as assignments before registration or investors are renting them out.
In a normal year, 55% of all sales take place in the first six months. Last year, with the introduction of the HST on July 1st, that number was 57%. Even the experts have now conceded that 2011 sales will be greater than 2010. They are now forecasting a market correction in 2012. If you recall, these same experts have been calling for a market correction every year since 2007! One year they will be right. But by that time, those who have been renting will have lost too much to ever make it back. The secret to real estate is: don’t try to time the market but be in the market! If prices rise and you are not in the market then you lose. If you are in the market and prices fall, then what you want to buy next has also fallen – in fact falling prices are the best time to trade up as higher priced properties tend to drop more in absolute terms than cheaper properties.
It is summer and everyone wants a property on the water. For Toronto we have Queens Quay and this month we looked at sales at 550 – a very popular 10 year old building with some great lake views. The first unit we looked at has a one bedroom, one bath with parking and locker. At over 600 sf, it sold in June of 2011 for $324,000. The same unit sold in 2005 for $208,500 and in 2002 for $218,000 (See the market has not been going straight up over the last 10 years!). The unit has partial lake view and sold at just under $500 per sf. It has appreciated at 5% per year. The second unit we examined was a two bedroom, two bath unit with parking, locker and balcony. It also sold in June of this year for $520,000. It previously sold in 2004 for $370,000. The unit at over 1100 sf sold for $460 per sf and this is with direct lake view! This unit also has appreciated at 5% per year over the last seven years. What do these two sales tell you about our market? Are we in a speculative market ready for a big price correction, or in a steady, healthy market with good technical support?
Vacancy rates for condos continue to be below 1%. Multiple offers exist in the rental market as well! In the Downtown market in June, 29 studio units were leased for $1300-1350 on average. There were just under 400 one bedroom units rented, starting at $1400 per month without parking. The most popular one bedroom units include a den and parking. These are renting for $1650 per month. Over 200 two bedroom units were leased in June. Two bedroom units without parking were averaging $2000 per month. The most popular model included a den and parking, and these were averaging $2350 per month. Total rentals for the month were actually lower than in May and this is solely attributable to a lack of rental supply. We expect rental rates to continue to move slowly higher for the balance of the year.
JUNE 2011 - Sales Commentary
Toronto Real Estate Board sales in May were just over 10,000 units. This was 6% higher than for May in 2010, and marked the first month this year where sales exceeded the same month in 2010. That trend will continue for June. We are looking at 10,000+ sales and June will be the biggest sales month of the year. Furthermore, expect every month for the balance of 2011 to surpass that of 2010. The final year end count will show that 2011 sales are greater than 2010. No one predicted that, except in this Market Report!!
All condo apartment sales in May were just 3% higher than for May in 2010. Downtown condo sales were also ahead by 3%. Unexpectedly, sales in the Etobicoke waterfront were down by 19% from May of 2010. Part of the reason was the introduction of several new pre-construction projects in a market much smaller than downtown. This had a negative impact on the resale market.
However the real brake on the real estate market has not been rising prices, but the lack of listing inventory. Even in the downtown condo market, with the registration of several major condo buildings that has increased product in the resale market, the sale to list ratio has risen from 32% last year to 38% this year!
The problem is that most experts cannot measure rising prices. Just look at the TREB stats for May. The average price for downtown properties west of Yonge St. was $370,000 – the previous May it was $373,000. East of Yonge St., the average was $405,000 and in May of 2010 it was $360,000. Now anyone who knows the market will tell you that prices west of Yonge for similar units are 10% higher than the east side. And buyers can tell you that prices certainly have not fallen over the past twelve months. But that is what the stats say and the experts rely on this information to tell you what to do in real estate! Of course the problem with averages is that if the mix of sales changes over time – one year more expensive properties sell- then the resulting averages are meaningless. And this always happens. That is why this Report only tracks price changes over time for identical or similar units to get a real price change in the market. Unfortunately the experts don’t have access to this information.
In this Report we looked at sales at 21 Carlton St., The Met, a four year old building. It is just steps from the College subway station, and is located between U of T and Ryerson Universities. You can’t find a better building for Generation Y or for investors. The first unit we looked at was a one bedroom plus den with two baths, parking and locker on a high floor. It is 680 sf with a balcony. It sold in 2011 for $407,500. It previously sold in November of 2007 for $330,000. This represented an increase of 24% over 42 months, with a price just under $600 per sf. This is the most popular style of unit in downtown Toronto. The second unit we compared was a two bedroom, two bath unit, with parking and balcony. It is 870 sf. It also sold this year for $469,000 and previously in August of 2008 (before the market correction) for $457,000. You could argue that the person bought the unit in 2008 at the peak of the market- exactly at the wrong time – yet it still increased by $12,000 in 29 months. This unit is now selling for $540. Two points we can make: there is no wrong time to buy, provided you hold the property for at least three years; and over time the price appreciation in Toronto has not been speculative but steady.
The studio market continues to be one of the best segments for investors. In May, 29 units were leased at an average price of $1300. One bedroom units without parking were leasing for $1400. Parking will add another $100 per month. One bedroom plus den units leased for $1600 to $1650 per month with parking. In total, over 400 one bedroom units were leased in May as we enter the seasonal peak of the rental market. Two bedroom units start at $1900 without parking and will average $2400 which includes a den and parking. 150 two bedroom units were leased in May. The rental market is tight – units are staying on the market for 10-15 days on average and investors are getting close to 100% of asking or list price.
MAY 2011 - Sales Commentary
April marked a slowdown in real estate markets, not just for Toronto but across Canada as well. Toronto Real Estate Board statistics showed 9,041 sales in April versus 10,898 for April last year – a drop of 17%. It should be noted that April sales in 2010 were the biggest sales month of the year. Overall condo sales were also lower in April – off 18% from April a year ago, while the downtown condo market was off by 12%. Part of the explanation is that there is a lack of listing inventory. Active listings are down 24% from the same time a year ago. The sales-to-list ratio for even the downtown condo market is virtually unchanged from a year ago, even with the more new projects hitting the market. This is an indication that prices will remain strong.
Lower sales results in isolation have lead many experts to proclaim that the real estate market will decline for the balance of the year. However preliminary results for May suggest that 10,500 units will be sold. This would be a 16% increase from April of this year, but more importantly it would be 10% greater than May 2010! Contrary to the experts, we have been predicting that 2011 sales will start to run ahead of 2010 by midyear. Again it appears that our forecasts are more accurate than the so called experts. While there may be some increase in mortgage interest rates later in the year, it will be minor and should have minimal impact. At this time there are no factors in place that would suggest any change in the direction of this market. And if we do not get more listings into this market, prices will not level off as many suggest but will continue to increase at rates above 5%.
This month we looked at sales at 300 Manitoba – Mystic Point. The building is about 10 years old and is located in Etobicoke, just south of the Gardiner Expressway. The building is a loft style, with 17 ft. ceilings. It is a ‘first time buyer’ building which appeals to people who work in 905 but want to be close to the City. The first unit we looked at was a one bedroom, 2-storey loft with parking and locker at just over 600 sf. It sold in 2011 for $240,000. The same unit also sold in 2007 for $199,000 and in 2006 for $183,000. Prices have increased about 30% over 5 years. A larger two bedroom, two bath unit, also with parking and locker sold in late 2010 for $298,000. At just over 900 sf, the price is a very reasonable at $330/sf. This unit also sold previously in 2009 for $270,000 and in 2004 and 2003 for $212,000 and $195,000. The increase in price for this unit over the seven year period is just over 50%. When downtown condo prices are in the $500-550/sf range, this building with selling prices in the $350/sf range will certainly appeal to price sensitive buyers.
As with sales, rental numbers in April were lower. There were 28 studios, 282 one bedroom units, 150 two bedroom units, and only 2 three bedroom units leased. Average monthly rental prices backed off slightly from March with studios going for $1250. One bedroom units without parking start at just over $1400 and increase with parking and a den to just under $1700. Two bedroom units start at $2,000 and go to $2400 which includes a den and parking. While the rental pool has grown by 25% over the last year, the vacancy rate for rental condos is still under 1%! An indication of how quickly these units are leasing is that one bedroom units are averaging just 9 days on the market while two bedroom units are being leased in 19 days. Note that the rental apartment vacancy rate is closer to 3%.