Market Report September-October 2016

20 September 2016

Sales Commentary

August sales on the Toronto Real Estate Board were up by 23% over August of last year. But to make an even bigger statement, August sales were only 1% lower than July. Last year the August to July drop was 19%! Also August sales in 2016 are higher than for sales in any Fall month for 2015. However, there is a double edge sword. Active Listings in August were 37% lower than for the same month last year, and new listings for August were down by 1%. This can only mean continued rising prices in the short term; and if things don’t change, then for a considerably longer period.

With prices for low rise housing in Toronto becoming unaffordable for many, the shift to more affordable condo housing, which we have predicted for the last two years, is now starting to snow ball! In the downtown condo market, new listings in August almost matched the ‘active’ listings total. In Humber Bay Shores, new listings for August actually matched ‘active’ listings. We are down to a one month’s supply of listings! A normal market in Toronto has been 3 months. In comparison, the U.S. market has always been 5-6 months of supply. 

We recently came back from Northern Europe and we were able to look at real estate prices in several markets. These cities have virtually no low rise housing. High rise or condo prices are at least $1000 psf and no one is talking about a real estate price bubble. In Stockholm the average mortgage service to income ratio is 90% versus 55% in Toronto and no one worries about what might happen to interest rates. The point to be made is that real estate is expensive in all major cities. The only way Toronto prices will ever correct is if all major cities worldwide take a hit at the same time. If that happens, we are all screwed and it does not matter where you put your money!

Nonetheless, condo prices have been appreciating at steady price over the last decade. From a personal perspective, we are closing on a unit this month which was purchased from the developer in 2007 (The L Tower) for $287,000 and was appraised today for $410,000. While the increase is significant, it is just 4% per year over the period, which is consistent with a healthy real estate market.   

Toronto MLS New Listings

Monthly Time Series with Trend Line

This chart plots monthly MLS ® new listings since January 1995. The blue line shows actual new listings. The red line is the trend computed using a 12-month moving average, which exhibits no seasonal variations or other irregular fluctuations. A substantial change in actual new listings must occur to change the direction of the trend. Source: Toronto Real Estate Board

Icon 1: 270 Wellington St. W.

As further support, we looked at sales this month from an older building in the heart of the Entertainment District; Icon 1 at 270 Wellington St. W. This 12 storey building, registered in 2002, provides a fairly long period to track prices. The one bedroom unit with locker and Juliette balcony sold in 2008 for $275,000 and again in August of this year for $363,000.It has real hardwood floors and granite. The sale price was $560 psf and produced an annual price increase of 3.5% over the period. The second unit is a 2 bed/2 bath corner unit with unobstructed views and parking. It sold in 2003 for $395,000 and in July of 2016 for $710,000. At under 1300 sf, that is only $555 psf. However, it has appreciated at 4.6% per year. While the building has a great location, it has only 8 ft ceilings which are a drag on prices. Currently, there is only one unit for sale out of 247 units.

Condo prices may spike in a particular year by 7-8%. But over a longer period we have again seen that price increases are in the 4% range. This is consistent with a healthy and sustainable condo market for Toronto, as we continue to point out.

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.