October has slow danced its way into the room and hence, into our lives. It’s becoming cliché these days to hear, where has the year gone? Alas, I’ll refrain. Instead, let me tell you why the 3rd quarter results that ended in August made me pause.
The sales numbers that were reported by the Toronto Real Estate Board continued on its upward trend which began in May of this year when the spring market finally kicked into gear.
The percentage of properties that changed hands was 2.8% higher than last year’s 3rd quarter activity. The overall condo market was up by 4.8% while condos in the downtown core were ahead by 3.9%.
Meanwhile, active and new listings declined for the month by 5% and 3% respectively.
“93, 000 Units Sales Expected”
When the month of September ushered in, we saw a 6.6% climb in sales compared to the same period the previous year.
If this momentum continues, we will likely see year-end sales of approximately 93,000 units throughout Toronto. What’s significant here? This figure would equal the all-time sales record set in 2007.
So what Stevie? Well, I can already hear the whispers of so-called experts spreading the false gospel of an overheated real estate market.
Our view is simple, the population in the GTA has expanded by 900,000 since 2007, thus these figures, if anything, might be lower than where they ought to be.
The real emphasis should be focused on the dramatic price escalation for freehold detached houses in downtown Toronto. Instead of blaming “irrational buyers,” as pundits & the media have been doing, it’s worth examining the role of our Municipal Government in this.
The City Land Transfer Tax has not deterred buyers as much as it has lent pause to sellers, keeping them at bay. In other words, home owners in large numbers are choosing to stay-put rather than move, disrupting traditional local migration patterns.
The culprit? To sell their present house and upgrade to a bigger or better freehold detached in the city will incur, on average, approximately $30,000 in direct out of pocket land transfer taxes. Many homeowners feel these funds would be best served elsewhere such as on a home renovation, for example.
What’s our take? Look for detached sales to slow down further while prices to continue to appreciate at a 10% year over year clip.
“Is there a condo oversupply problem?”
Observing new condo listings that come on the market, it might appear that there is ample supply.
However, what sheer numbers alone won’t show you is the shortage of larger condo units – a segment becoming more desirable by end-users. Add to this dynamic an excess supply of units with 8 ft. ceilings and things get a little more interesting.
What’s the problem with 8ft ceilings you ask? By and large, not much. However, this design theme is no longer in vogue with many younger buyers who insist on 9 ft ceilings or higher to offset the smothering feel of smaller spaces.
Adding fuel to this situation, we know that it takes 4-5 years from pre-construction sales to the final delivery of the unit. End users rarely purchase that far in advance, indicating that investors are the main group buying the bulk of pre-construction condos at launch.
Again, thanks to our tax structure, smaller units make better economic sense for investors. Hence the mis-match between what end users desire (larger units) and what developers are motivated to build (smaller units).
The end of the 3rd quarter – August – is traditionally the busiest rental month of the year. Universities and businesses all gear up for a September kick off. There were over 1,000 condo rentals leased versus just 450 sales in the downtown core.
We don’t believe that the sales market is ‘hot’ but we do believe that the rental market is indeed quite ‘hot.’
The average days-on-market for rentals, ranged from 7 to 13 days, depending on the type of unit. There were multiple offers and in many instances the leased price was above the list price.
In the studio market, the average rent was $1450. Rents in the one-bedroom market increased by $25-50 per month from July. The entry level one bedroom without parking was $1600.
A one bedroom with den but no parking had an average list price of $1750 and an average lease price of $1800.
The starting point for the two bedroom market without parking remained at $2200 per month, as did the high end with a den and parking at almost $2900 per month. There were 14 three bedroom units leased in August at an average rent of over $3500 per month.