Toronto Market Report November-December 2017

20 November 2017

Toronto Real Estate Market Report Nov-Dec 2017

Sales Commentary

GTA Year-Over-Year Summary for August

October sales on the Toronto Real Estate Board were down 26% from October of last year but were 12% higher than in September. Are we still in a sales decline or is this the first sign of a rebound? On a year-to-date basis, sales are at 80,000 units and we forecast that we will end the year at 91,000 sales – about 19% lower than the 113,000 units of last year. There was some buyer speculation in the 2016 numbers, and we believe that a normal market, based on demographics for the GTA, would produce sales of 100,000 units per year which we feel is realistic for 2018.

That being said, the fly in the ointment is recent changes announced by OSFI (the Office of the Superintendent of Financial Institutions) which is introducing new regulations making it more difficult to borrow and also reducing the mortgage amounts that uninsured borrowers can qualify for. We already have rules for insured borrowings, which make sense, since it is the Government on the hook for the risk of these mortgage defaults. But let’s be clear: CMHC has made record profits for the Government, even after the provision for loan losses. Now the Government wants to make sure that banks make record profits too!

The condo market has consistently outperformed the overall market for the last six months. Downtown sales were 18% lower in October than for the same month last year. In Humber Bay Shores, October condo sales were 16% lower than the same month in 2016. Looking at condo sales for the first half of November, we expect sales to be 11% lower than in October, due to seasonality. In 2016 and 2015, the monthly drop from October to November was 13% and 16% respectively. A partial explanation for the uptick is that buyers are trying to qualify under existing rules before January 1. There is no doubt that everyone hates uncertainty and change. It takes the market anywhere from three to six months to adjust. Our guess is that we won’t return to normal sales levels until April or May. However, people expecting prices to fall will be disappointed. Owners only get desperate when they fall behind on their mortgage payments and currently, Mortgage Arrears in Ontario are at an all-time low!

Toronto MLS® Sales
Monthly with Three Previous Years for Comparison

Toronto Downtown Condos

This chart plots monthly MLS® sales 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

2240 Lake Shore Blvd: Beyond The Sea Condos

To support our views on condo prices, we tracked sales at Beyond the Sea Condos, 2240 Lake Shore Blvd. in Humber Bay Shores. Prices in this area have recently started climbing towards downtown condo prices. The first unit we looked at was a one bedroom with a balcony, locker, and parking on a high floor with westerly views. Registered in 2012, it sold for $276,000. It sold again in May of 2017 for $431,000. Over 5 years, that is an annual increase of 9.5%. At 584 sq.ft., the current price is $738/sq.ft. Our two bedroom, two bath unit; also with a balcony, locker, and parking has an interesting story. It sold in late 2016, just as the market was taking off for $485,000 ($40,000 over list). Also on a high floor with not quite as good views, it sold again in September for $569,000 – 18% higher than a year ago. This result supports what we have been telling you all along: that condo prices have jumped by 20% in a year and they have not softened at all. This unit, at 939 sq.ft., has a price of $606/sq.ft. Currently, there are three units for sale out of 280 units in the building. All three are two bedrooms plus den, with offering prices in the $700/sf range.

Rental Commentary

Just under 900 condos were leased in the downtown market in October. This is down from 1,000 in September and 1300 in August. The vacancy rate remains at under one-half percent of one percent. Rental prices have leveled off and many investors who thought that prices would continue to rise indefinitely have had to reduce their listing prices in the past month.

Studio rents were unchanged from September at $1750 on average. The one-bedroom market, without parking, remained the most popular segment with rents topping $2,000 per month for the first time. As with last month, expect to pay $200 per month more for the den feature and $150 more on average for parking.

The two-bedroom market now starts at $2620 per month. That is without parking or a den. The most popular style with parking is at $3,000 per month and the high end of this market is now at $3400 per month.

Looking at rents from last year, the one-bedroom market has seen annual increases of over $250 per month. Increases in the two-bedroom market have been more moderate, at $150 per month over the last twelve months. That works out to annual increases of 14 and 6%. These increases can only occur when there is a turnover of tenants. But more and more tenants will be staying put, as the Ontario Government has instituted rent control increases of just 1.8% in 2017. How does that work when utility costs (condo fees) and property taxes are rising at 3+% per year? Investors can ask for increases above the rent control number, but must first apply to the Landlord and Tenant Board. Our guess is that there will be long waiting lists in 2018.

A preliminary forecast for 2018 suggests that condo rental volumes will be lower than this year as more tenants won’t move and more investors will sell their units rather than accept a 1.8 % rent increase.

Number of Sales by Area for October 2017

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

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