Toronto Market Report August-September 2017

09 August 2017

Sales Commentary

The market continued its sales decline for the fourth straight month. Sales on TREB were 5,921 units in July, down 40% from last year’s number of 9,929. Historically, sales should be in the nine thousand range. Are we concerned? No – in fact we prefer this market to that of February and March. Back then, the market was driven by irrational behavior which was unsustainable.

The current slowdown is psychological. Sellers still want March prices and buyers expect a price correction of 25%. The reality is neither will happen. Prices are down by 15% from their peak but are still 15% higher than a year ago. The question is: who will outwait the other? Our bet is on sellers! Unlike buying groceries that cannot be postponed, buying real estate can be deferred but only for so long. Real estate is not dominated by speculators and foreign buyers but by people who need a home to live in and who buy and sell based on changing family dynamics: marriage, divorce, births, and deaths.  When you look at the Toronto market, the underlying factors that drive this market have not changed: ongoing population growth, low-interest rates, and strong employment. Did you know that Toronto is now considered the top office market in North America with the lowest vacancy rates? That all points to long term growth in our market. So, when will our market resume its sales growth? If we knew with certainty, we would have retired by now. Our best guess is that this market will start to pick up by the end of September. 

For the first time, the condo market is outperforming the single detached market. One reason is that it only experienced one year of double digit price growth – as opposed to three for houses. Another is the realization that not everyone can afford a house in this market and that condos are the most affordable and lifestyle friendly way for millennials to enter the market. Looking at the downtown condo market, sales were down by 30% but new listings were also down by 15% in July. Prices remain almost 30% higher than a year ago. In Humber Bay Shores, prices also maintained their gains from the spring, as July sales were unchanged from a year ago and new listings down by 9%.

TREB MLS® Average Resale Home Price

This chart plots the monthly MLS® average home price for the current year and the previous three years. The recurring seasonal trend can be examined along with comparisons to previous years for each month. Source: Toronto Real Estate Board.

Market Wharf: One Market Street

One of the hottest neighbourhoods is the St. Lawrence Market. Besides the market, you can walk to everything from restaurants and theatre, to the financial district at King and Bay. The Market Wharf Tower has 357 units and registered in 2013. The first unit we tracked was a one bedroom with balcony and locker but no parking. On a high floor, it faces west to the downtown core. It sold in 2013 for $315,000 and in 2017 for $420,000. It was listed at the end of May (after the supposed market correction) and sold over list price in 8 days. Since registration, the unit has appreciated at 10% per year. At 525 sq.ft., the last sale was at $800 per sq.ft.
The second condo we looked at also sold twice since registration. It is a two bedroom, two bath corner suite with balcony, locker, and parking. Also on a high floor, it faces northwest. It sold in 2013 for $695,000. It sold again in August of 2016 for $815,000 in just 7 days, again over list price. In three years, the unit increased by 5.5% per year. At 963 sq.ft., the sale price last year $846 per sq.ft. Today this unit would sell for over $900 per sq.ft. Currently, there is only one unit for sale in the building. It is a smaller two-bedroom unit with parking and is listed at $935 per sq.ft.

Rental Commentary

So why are rental rates rising so quickly? You can thank rent controls for that! Landlords know that tenants that stay and renew their lease are subject to annual increases of just 1.5% in 2017 and 1.8% in 2018. That is less than the annual increase in property taxes and utilities. Landlords are now asking more at the front end to offset future losses. In this market, as more people continue to move downtown but are being squeezed out of the buying market (thanks to more Government intervention with artificial qualifying mortgage rates), their only option is to rent.

July is the start of the peak rental season. Almost 1400 condo units were leased in July, which was 16% higher than in June! Studio or Bachelor units averaged $1650 per month. This is $25 higher than last month. The most in demand unit was the one bedroom without parking. They are leasing for $1925 on average! The one plus one with parking now averages $2250.

The two-bedroom market has an entry point of $2700. At the high end, include parking and a den, the figure comes to $3400. Three bedrooms are $4,000 per month and higher.

The take aways from this market are: everything is renting for over list price; multiple offers are numerous; and for the first time, agents are offering incentives to get their client chosen!

This map shows the number of sales and median price for residential homes for July 2017 by municipal breakdown.