July sales on the Toronto Real Estate Board produced mixed signals. Sales at 6900+ units are 18% higher than July of last year. However, this is 13% lower than from June (not unexpected) but the normal average for July is 9,000 units. So, what do we make of this? Sales have stabilized and will slowly move higher over the Fall period. But, they are still not at levels that are consistent with the size of our market. At the street level, people would still prefer to buy than to rent but they can’t get the financing.
Most naysayers of our market still believe that prices will drop significantly. But, when you look at listing inventory, and particularly good properties, there is still a shortage. For example: ‘active’ condo listings downtown decreased by 15% compared to July of 2017. Yes, higher priced properties take longer to sell and are often overpriced. At the same time, properties under a million are attracting multiple offers.
At the start of the year, condos were the hot market segment and prices moved higher by over 15%. At the same time, low rise properties remained flat in price. The gap between the two narrowed, which saw some buyers shift back to the low-rise market in Toronto (the 416). While overall condo sales in July were 9% higher than for July of last year, most of the increase was in 905. In fact, condo sales in the downtown market were only equal to sales last July which was surprising. That does not mean that people do not want to live downtown, in fact, there were 3.5 times as many leases as sales in July! As we have stated before, the ‘first time’ buyer is missing from our market and it can all be traced back to the difficulty in qualifying for a mortgage. My guess is that banks will soon work together to reduce their ‘posted’ mortgage rates (no one borrows at these rates anyway) which will then make it easier for buyers to qualify!
What we can tell you about the condo market is that good units, priced at market are still attracting multiple offers. Miss in either category and the unit will sit.
As we hit the half way point of the year, we always look to project final sale totals as shown in the Table below.
TORONTO JULY SALES 2018
This graph plots the number of sales in July over the past 5 years. For 2018, sales have stabilized, but they are still not at levels that are consistent with the size of our market.
Source: Toronto Real Estate Board
DNA 3: 1030 King Street West
King St. west continues to be ‘the street’ for young tech professionals. One of the most popular buildings is DNA 3because of its many social amenities. It was registered in 2015 and most units have 9 ft ceilings. The first unit we examined was a small one bedroom with balcony, locker and parking. It first sold in 2016 for $355,000 and then again in June of 2018 for $565,000 – an insane 24% annual increase. At 487 sf, that’s a price of over $1100 psf. But, what you need to know is that it is rare to have a unit this small with parking. When you remove the parking spot, the actual price is $1,000 psf. The second condo we looked at was a two bedroom/two bath, also with balcony, locker, and parking. It sold in 2015 for $485,000 and at the end of 2017 for $670,000. That’s an annual increase of 17%. This compact two bedroom is just 690 sf with a price of $970 psf. The building is a mid-rise, 14 storeys with 602 units. There are currently 6 units for sale – all at $950 psf. You can see from these comparables that prices spiked in early 2018 and have come off their highs over the last few months.
While downtown condo sales in July were flat compared to last year, condo leases were 27% higher than for July of 2017. What is more remarkable is that the lease market is 3.5 times bigger than the sales market. We had projected that with rent controls in place, more tenants would not move and the market would be flat. But the demand to live downtown by millennials and Gen X has only increased. With the ‘first time’ buyer forced to rent instead, rents have sky-rocketed. The economics of renting (try $4.50 per sf per month), have turned many units cash flow positive (remember that half of all mortgage payments go to the repayment of principal) and that is all investors are looking to achieve along with capital appreciation.
In July, 50% of all units leased were without parking. As we have argued before, people who want to live downtown are prepared to pay more (either to buy or to rent) and will give up owning a car. In fact, many do not even want to use public transit and prefer to walk or bike!
In terms of rents, studios are higher again at $1850 per month – no parking. A one bedroom plus den – no parking is at $2400 per month. A two bedroom – no parking is at $3,000. And three-bedroom units are over $4200 per month. These rents are $50 to $100 per month higher than just a couple of months ago.