The Toronto Real Estate Board reported February sales were down 35% from February of last year. Get use to it: we will be reporting the same story for at least the next couple of months. However, what the media seems to focus on is the decline in average prices - that’s the average price of all sales on TREB and it is down by 12% from February of 2017. But average price is dependent on the ‘mix’ of sales. If more smaller properties are selling, even if their prices are rising, then the average price will fall. That leads us to a discussion of the condo market.
All condo sales on TREB were down by 30% this February over February of last year but in the Downtown market, February sales were 32% lower than in 2017; 23% lower than in 2016; and 9% higher than in 2015. In Humber Bay, the February sales were down only 15% from 2017; 11% lower than 2016; and 4% higher than in 2015. Remember that 2015 is the year that most resembles 2018 in terms of our sales forecasts.
But the price story can be traced to listings. In a normal market ‘new’ listings in a month should be 33% to 50% of ‘active’ listings. In the Downtown condo market for February of 2018, ‘new‘ listings were 105% of ‘active’ listings. In 2017, the number was 144%; in 2016 it was 72%; and in 2015 it was 60%. In February of 2018 we had only 601 ‘new’ listings in the Downtown condo market. Compare that to 685 in 2017; 948 in 2016; and 1762 in 2015 (when the experts said a price crash was coming). That explains why condo prices have risen almost $200/sf in the last twelve months.
You would think that rising prices would lead to increased sales. That’s what economists tell you. But, the reality for real estate is that people will not move/sell if they have no place to go! For owners, the double land transfer tax makes staying put and renovating more attractive. For Investors, they are having difficulty in selling units that are tenanted, and rent controls make it worse.
As already mentioned, Downtown condo prices have increased about $200/sf over the last twelve months – that’s over 20%. We believe that type of increase is unsustainable over the long term. Annual sustainable price increases should be in the 3-4% range. So, don’t expect prices to decline but do expect a flattening.
This chart compares new listings during the month of February to Active listings at the end of February for the past four years. In a normal market, ‘new’ listings in a month should be 33% to 50% of ‘active’ listings.
Looking at price trends, this Report focused on sales in the WaterClub III at 218 Queens Quay. It features views of the lake and an easy walk to sporting events and the financial core. The one bedroom we tracked has no locker and no parking. It is on a high floor with direct lake views and a small balcony. It sold in 2006 for $268,000, in 2009 for $298,000 and in May of 2017 (after the supposed price correction) for $532,000. Over 11 years, the annual appreciation is 5.5%. At just over 600 sf, this price is $875/sf. The second condo we looked at was a two bed, two bath unit with balcony and parking but no locker. It’s also on a high floor with direct lake views. This unit sold in 2012 for $575,000 and then again in 2017 for $895,000. The increase in price was 9.2% per year. We have said that bigger units will eventually appreciate faster than smaller ones. At 1057sf, this price is $850/sf. The building consists of 296 units and there are currently 3 for lease and 3 for sale. Units being offered for sale are priced at $950 -$1,000/sf.
In January, there were over 1,000 condo units leased in the Downtown market. For February this dropped to 800 units. That is the same as for February of 2017 but is less than the 900 units in February of 2016. We do believe that rent controls will have an impact over the leasing market as we progress through 2018.
In terms of rents, the studio or bachelor remained steady at $1700 per month. The entry point for the one-bedroom market is still $2000. However, the high end (one plus den and parking) has increased to the $2300 level as more people are trying to double up in this space. This has spilled over into the two-bedroom market. The entry point is now $2500 – almost $200 per month higher than in January. The high end (plus den and parking) is $3450. The three bedroom-market is also higher at almost $4000 per month.
It is obvious that rent controls are also impacting rates for vacant apartments. Even with these higher rents, we continue to see multiple offers for most units.
Another challenge will be the introduction of standard leases for April 30th. While we are in favour of the concept – making it easier for tenants to understand their rights, we are concerned that the rent deposit is limited to just the last month. What happens to those potential tenants who are ‘new to Canada’ and have no or little employment records? What about students? The Government wants to legislate those people out of the rental market!
And if you are wondering about the list-to-lease price, it is still 100% across the board – the same as last month.
This chart plots the monthly MLS® average price since January 1995. The blue line shows the actual average price. The red line is the trend computed using a 12-month average, which exhibits no seasonal variations or other irregular fluctuations. A substantial change in actual average price must occur to change the direction of the trend.