Toronto Market Report August-September 2016

22 August 2016

Sales Commentary

July sales on the Toronto Real Estate Board were just under 10,000 units, which was 2% higher than July of last year. However, these sale numbers were 22% lower than for June  and about the same as in March of this year. This suggests a slowing market due to seasonality and also a market taking a breather. But the real drag to the market continues to be a lack of listings. ‘Active’ listings are 31% lower than in July of last year and ‘new’ listings in July were down by 7% over July of last year which just continues the problem.

In terms of the condo market, the same trends are evident. Downtown condos showed a sales increase of 19% over July of 2015 but a decrease of 17% from June of this year. In Humber Bay Shores, sales were the same as last year for July but down by 18% from June. Again, the issue is a lack of listings and in fact in Humber Bay Shores, ‘active’ listings are down by 50% over July of last year.

The end result is that prices this year are rising at rates that are unsustainable in the long term. In Toronto, low rise housing is increasing at an annual rate of 15% versus 8% for condos in 2016. The solution is not the imposition of a 15% sales tax on non-residents buying real estate as was implemented in B.C. While a tax would look like the Government is doing something that does not impact voters, the number of non-resident buyers is only about 5% of the market as reported by developers and confirmed by an informal survey of our top agents who deal with high end properties. The solution is obvious – increase the supply of listings – but we are uncertain whether Governments wants to go there. That would mean eliminating the City Land Transfer Tax which has encouraged people to stay in their property rather than move; modify the Green Belt to allow for more housing; speed up the approval process and offer incentives for affordable housing; and solve transportation issues in a matter of years and not decades as currently planned. Our guess is that this type of tax will come to Ontario later this year, after token consultation and study has taken place.

Liberty Village: 55 East Liberty Street

In terms of condo pricing, we continue to believe that tracking average prices is easy to do, and understand, but is flawed. The only meaningful way is to track prices for individual units. In this Report, we looked at sales at 55 East Liberty St. in Liberty Village, in the King West area.  Liberty Village is a self-contained neighborhood of contemporary high rise condos and converted brick & beam office buildings. The first unit we looked at was a one bedroom plus den. It has a large terrace with parking and locker. It sold first in 2012 for $398,000 and again in 2016 for $457,000. That works out to an annual price increase of just 3.4%. But the current price is over $650 psf. That is high for Liberty Village but can be explained because this is a corner unit facing south to the Lake and has a custom stone wall with built in fireplace that you never see in units of this size.

The second unit we looked at was a two bedroom/two bath unit with a den, parking, and locker. It sold in 2010 for $462,000; in 2013 for $488,000; and in 2016 for $513,000. This unit only appreciated by 1.8% per year over the period. At 1,000 sf, the selling price is just over $500 per sf. This price is a little low for Liberty Village but the unit faces east and has lost much of its view with a newer adjacent building. The modest price appreciation for both units supports the view that the amount of new condo buildings has been good for Toronto. Millennials want to live downtown and condo prices are not outstripping affordability which bodes well for the future.

Currently, there are only three units for sale in this building out of 276 units. If one assumes a four year turnover for units, and a selling time of 60 days; a normal market would have 11 units for sale at any one time. Currently, we have a shortage of units and if this continues, then condo prices will increase more quickly.

Rental Commentary:

We have previously talked about the seasonality of the rental market. August and September are the biggest months in terms of lease numbers and also the highest rental prices. Over 1500 condo units were leased downtown which is double the size of the sales market for August.

In terms of rental prices, studios rented out for an average of $1525 per month which was 101% of the list price! The one bedroom market (no parking) averaged $1725 per month. One bedroom units with parking were $1875. And it increases from there – a one bedroom plus den with no parking averaged $1945 and with parking the average was $2050.

The two bedroom market continues to be in even more demand. The basic two bedroom, without parking now averages $2500 per month. Prices increase to $3200 on average for a two bedroom plus den and parking. The three bedroom market is usually the slowest market with the longest times to rent out. But in August, the average time on market was 6 days and the average price was $3400.

We notice that many people try Craig’s List and Kijiji to rent properties. They see prices below market and it seems easier than dealing with a Realtor. These people have no problem in writing a first and last month’s deposit to a stranger for a unit they don’t even know if they own. These scams are now making news. With a Realtor, the money is held in a Trust Account that is insured, and you know that the Realtor has feted for ownership and the ability to deliver the unit to a tenant.