Toronto Market Report October-November 2016

10 November 2016

Toronto Market Report Oct-Nov 2016

Sales Commentary

September sales followed a similar pattern to previous months. Sales were 21% higher than in September of 2015. But of more significance was that sales of 9900 units were more typical of a June and July than of a fall market. At the same time, listings continued to be in short supply – down 36% from a year ago. The end result is a continuing upward pressure on prices of all types of housing. The condo market mirrored the stats of the overall market – sales ahead by 30% and active listings lower by 40% against September of 2015 numbers.

But what everyone is talking about is the mortgage changes introduced by the Federal Government, effective October 17. First, all insured mortgages – both high ratio and conventional will have to be qualified at the POSTED RATE (4.54%) and not the actual five year rate nearer to 2.5%. This will really impact first time buyers and those who are high ratio borrowers. They can only qualify for smaller mortgage amounts.

Next, conventional mortgages (less than 80%),  that are refinances and rental properties are no longer insurable. These and regular conventional mortgage purchases can be qualified at the ACTUAL five year rate which can provide for larger mortgage amounts.

Impact on the Real Estate Market

1.     The Government is hoping that these changes will lower real estate prices because first time buyers and other high ratio buyers can only qualify for smaller mortgages. The reality is that prices will not fall. Anyone in real estate knows that if a seller does not get their price, they take their property off the market. The only time they reduce their price is when they have to sell. Currently, in Ontario, Mortgages in Arrears are at a 20 year low, so we don’t see a lot of sellers who must unload their properties.

2.     Will there be some sort of slowdown in real estate sales? Yes, some buyers will wait, hoping prices will drop and when they don’t they will re-enter the market. Look for a later start to the spring market. And a lack of first time buyers will also be a drag on sales in the longer term.

3.     Mortgage rates will increase over time. The Government has effectively insulated the mortgage market from the real economy.

Winners and Losers:

1.    Banks are the big winners. They are the only ones with capacity to take on conventional loans that do not have to be insured. Over time they will be able to increase mortgage spreads without competition.

2.     Investors in the rental market will also do well. As people get priced out of the real estate market, the demand for rentals will increase and rents will rise.

3.     Consumers and first time buyers are the big losers – they either can’t get into the market and must rent, or incur higher mortgage interest costs to borrow.  

Toronto MLS New Listings

Monthly Time Series with Trend Line

Toronto Average Resale Home Price

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. New listings have been flat since 2007 while sales have increased by 20%.Source: Toronto Real Estate Board

The Bridge Condos: 38 Joe Shuster Way

38 Joe Shuster Way Comparison Chart

This month we looked at sales at 38 Joe Shuster Way, The Bridge Condos. We picked it because it was built by Urbancorp, a developer who went bankrupt and stiffed a lot of buyers, contractors, and agents. The building did register in 2014. The first unit we looked at was a one bedroom with balcony and locker. It has unobstructed views of city and lake. It sold first in 2014 for $255,000 and in 2016 for $285,000.  The rate of appreciation was 4.9% per year. At 570 sf, that is just $500 psf. The second unit we tracked was a two bedroom, two bath unit with locker and parking. It also sold in 2014 for $357,000 and again in 2016 for $390,000. At 830 sf, that is only $470 psf. The annual price increase for this unit was 4.6%. One of the major selling features for the Bridge is that it was adjacent to Liberty Village. However, the prices in Liberty Village are $600+ psf and the increase in condo prices in just the last year have been 8-10%. That is double the rate of Bridge. The lesson to be learned is don’t buy the cheapest project, but buy from a reputable developer. That’s where a condo expert can help and you will be further ahead in the long term.

Rental Commentary:

September condo rentals downtown were down slightly from August, as expected, but at 1400 units were 27% higher than for September of 2015.  We expect the level of rentals to continue throughout the fall with days to lease for units averaging less than ten for all types of units. A year ago the number was in the 15-20 day range.

Rental prices remained unchanged from last month. Studios were renting for $1525 on average. 
The entry point to the one bedroom market is $1725 per month without parking. The biggest market was for the one bedroom plus den with parking. Over 300 units were rented. The average rent of $2070 suggests that most of these units have two tenants, with the den being pressed into service as a second bedroom in many instances.

In the two bedroom market, the average entry point continues to be $2500. The average parking spot premium has increased from $100/mo. several years ago to $200/mo. now. Of course this price varies by building, as it is dependent on how few or many spaces the developer originally built; and not on the price of the units in the building.

The three bedroom market continues to grow with average rents this month in the $3500 range. Expect this market to grow and look for some two bedroom plus den condos to be converted.