BLOGGING FOR CONDOS

SALES COMMENTARY:

September sales on the Toronto Real Estate Board were as forecast – up 28% over September of ’08. Who says Realtors are overly optimistic? Even we were wrong with our September forecast of 7500 units – the final number was 8200! Again condo sales lead the way with year over year increases of 34% in the overall market, over 45% for Downtown condo sales, and 50% on the Etobicoke Waterfront. Look for October sales numbers in the 7500 unit range which will surpass October of last year’s 5100 (when the market started to tank). Comparing to last year is no longer appropriate. We need to look at a number of years. Total sales for 2009 will probably be in the 83,000 range – down from the 2007 record year of 93,000 units but on a par with 2004, 2005, and 2006. Hence 2009 sale levels are very sustainable going forward.

The Downtown condo market is extremely tight. The sale-to-list ratio has moved to over 75% meaning that everything is selling in less than 30 days (the norm is 60-90). Resale condo prices are rising on average at 1% per month. Multiple offers are the norm under $400,000. Some frustrated buyers are returning to the new development condo market which has lagged the resale market. The price gap premium for new has narrowed from over $100 per sf. to less than $50. Part of this rush is the public’s race to beat the HST next June and to capitalize on low mortgage rates which the Bank of Canada will revisit again in June of 2010. The Spring market promises to be hot and will match 2007!

This month we looked at sales at City Centre – 381 Front St. West, known as the Apex. The City Centre Complex is a prime location but represents entry level condo pricing for those who want to walk to work. The first unit we looked at was a one bedroom with den, parking and locker at 675 sf. plus a 25sf. balcony. The same unit sold three times from 2004 at $222,000 to $260,000 in 2007 and then again in June of this year at $302,000. That is $447 per sf. including parking. Another one bedroom sold at the same time for $425 per sf.  as a reference. We then looked at a two bedroom with den, parking and locker at 950 sf. plus balcony. This unit sold for $315,000 in 2006 and then for $410,000 in June of 2009.  That is $431 per sf. It is interesting to note that the price per sf. for smaller versus bigger units has narrowed – just exactly what we forecast a couple of years ago. Also both the one and the two bedroom units are appreciating at a rate of just under 10% per annum. Again a convergence of performance between unit sizes.

RENTAL COMMENTARY:

We are now entering a slower rental market. On average, rental numbers were off by 20%. There were 34 bachelors, 206 one bedroom units, 106 two bedroom units, and only 3 three bedroom units rented. Rental rates continue to inch upwards, on average about $50 per month. The basic one bedroom without parking was renting for $1400 plus, while the most popular unit – a one bedroom with den and parking was going for $1650. Two bedrooms start at $1900 and will go up to $2450 for a den and parking.

The real estate market usually slows by mid October, but not this year. The market under $400,000 is still being dominated by multiple offers. So frustrating that some buyers are moving from resale to the new development market.

With a lack of listings, resale condo prices have started  to increase and the gap between new and resale prices is narrowing – from over $100 per sf. to about $50. What should you do? Buy a resale condo now in expectation that this market will run for at least another year? Buy a new condo at a smaller premium than before and take delivery in three years?

SALES COMMENTARY:

August sales at 8,035 units on the Toronto Real Estate Board were 27% ahead of August numbers for ’08. While sales were down from July this is strictly a seasonal factor. On the condo front, overall sales were up by 26% this August over August ’08; on the Etobicoke Waterfront by 23% and Downtown by an incredible 66%!

Now to dispel the final myth: that this recovery is a ‘false up’ and that the real estate market will turn down again. We said we needed to see September numbers to confirm the trend for the balance of the year. Well we are forecasting September sales at 7500 units which compares to 6400 units in September ’08 and 6900 units for September ’07 (remember the record breaking year)! With low mortgage rates, rising public confidence that the worst of the recession is behind us, and Government economic stimulus programs still to impact the economy (what else is new- Governments are all talk, no action, and always a year behind reality), the economy can only go up from here. It is safe to assume that the real estate market will continue tracking upwards. For owners, the current lack of listings has lead to rising prices but the inventory of listings can change significantly within six months. Now is a great time to sell for investors.

This month we examined three sales at the DNA building at 1 Shaw in King West – the hottest condo area this year. The building is geared to younger buyers and most of the units are smaller. The smallest unit at 645 sf. was sold in June of this year at $290,000 (2% over list price). It previously sold for $228,000 – three years ago. It is a one bedroom without parking but has a locker. A slightly larger unit (660 sf.) with parking but no locker sold for $287,000 in July (3% over list price). It previously sold in 2007 (at the peak of the earlier market) for $267,000. The largest unit, at 935 sf. with two bedrooms, parking and locker, sold for $388,000 (3% under list) in March of ’09. Previously it sold for $370,000 in August of ’06. It is interesting that the smallest unit sold for $450 per sf. whereas the largest sold for only $415 per sf. Compare that to new developments that sell for $500 per ft. and more. Condo prices in this building are rising at 9% per year for the smaller units and about 3% for the bigger units – even taking into account the price correction at the end of 2008.  People who decided to wait have certainly lost and it proves our point once again that ‘you cannot time the market’!

RENTAL COMMENTARY:

August and July are always the busiest months of the year with every one wanting a September 1^st occupancy. August surpassed July with 40 studios, 254 one-bedroom units, and 131 two-bedroom units changing hands Downtown. Prices were also up. Tenants paid $1350 for studios, one- bedrooms went from a low $1350 without parking to a high of $1600 with parking and a den. Two-bedroom units ranged from $2000 without parking to $2250 for parking and a den. It is interesting to note that the premium for a parking spot has moved up from $100 to $150 per month. Finally, investors who are thinking about renting have missed this year’s market! It ended September 1^st. You should be thinking about selling instead.

September sales – 8,200 units compared with 6,500 in September of ‘08 – confirmed that we will enjoy a strong Fall Market. Early indications for October confirm about 7,500 sales versus only 5,100 a year ago in October. No doubt that October last year was the start of the steep down turn in the condo market.

The other trend that people over look is the Seasonality Factor. Historically, sales in October and September are always very close. the drop off occurs in November. But remember that sales levels in these months are usually 35% lower than the peak Spring months of may and June.

So for frustrated buyers who would like to reduce the number of multiple offerr scenerios, your time will come, Try the latter half of November and focus on December.  We have an unusual low number of listings, so sellers can still get into the market and not have to worry about their property sitting there until spring. Not a bad market for all participants.

So when do we see a change? Not much will happen until two shoes drop. First will the Feds raise interest rates as they promised to review next June? Secondly, what will be the impact of the HST? It is coming – in some form for June 30 as well.

But that is a subject for another blog.

August numbers are out from the Toronto Real Estate Board. Sales were just over 8,000 units -27% higher than August ‘08. For September, we are forecasting 7,500+ units. Compare that to 6400 units in September ‘08 and 6,900 units in September ‘07 ( the record sales year on TREB).

There is no reason to expect this market to back off. Affordability is at a five year low and the economy is starting to improve along with consumer confidence. Listings are still in short supply and while prices have increased from February lows, we have not seen any speculative price increases that would suggest any type of housing/condo bubble that would lead to a correction in the near term.

All good news but we have been in this business long enough to not get complacent. The key to success in this business is to track the real estate market on an ongoing basis and to keep on top of even the slightest changes. That’s where most of the experts tend to fall down and which leads them to their biggest mistakes.

SALES COMMENTARY:

July was another record breaking month for the Toronto Real Estate Board. Residential sales were 9,967 units – up 28% over ’08 but down 9% from the peak month this year which was June. On the condo side, sales were up 24% over July ’08. In South Etobicoke, condo sales were ahead by 5%, whereas Downtown condo sales were up by 33%. More significantly, Downtown condo sales matched June’s numbers. August numbers will be lower than July’s – in the 8,000 unit range which will be 25% ahead of August of ’08. But we need to see September numbers before we can accurately gage the rest of the year.

We know that low interest rates and Generation X and Y are driving this market. But what is fuelling strong prices is the lack of listing inventory which has caught most of us by surprise. New listings continue to trend down – 18% lower this July, than in July of ’08. Active listings, the pool for buyers to select from, is 36% lower than last year! When you examine the sale-to-list ratio for condos Downtown, it is currently over 80% (remember a balanced market is 25-35%) and in South Etobicoke it is just over 50%. This is certainly a window for sellers to move up and for investors to sell out. Experts seem convinced that demand (buyers) will drop off later this year. Their rationale is not based on any economic factors but just that buyers have to run out at some time. Certainly seasonality will slow this market but our analysis shows that condo buyers just don’t work in area ‘416’, as most people assume. The number of younger buyers who work in ‘905’ and who insist in living Downtown is huge and is growing!

This month we looked at sales at Mystic Point and The Tides building in South Etobicoke. This is the perfect building for young people – lower prices and highway access for those who work in ‘905’. We looked at three different-sized units to track the price trend from the market peak in 2007 down to the trough in late 2008 and then the market rebound in 2009. As we have reported before, small units were not impacted in 2008, whereas larger units definitely dropped in price and then rebounded. The smallest unit we looked at was a jr. one-bedroom with parking which sold in 2007 for $187,000 and then sold again in July of this year for $207,000. A two-bedroom with one bath, at 800 sq.ft., sold in 2008 for $264,000 and again in May of this year for $277,000. The biggest unit with the best view – two bedrooms with two baths and parking, sold initially for $324,000 in 2007 and was sold again in May of this year for just $313,500. The smallest unit is selling for $400 per sq.ft., while the bigger units are going for $350 per sq.ft. which is a discount to the Downtown market of about $50-75 per sq.ft. Prices at these levels are definitely sustainable going forward.

RENTAL COMMENTARY:

The rental market remains strong and very tight. 245 one-bedroom units were leased Downtown, from a low of $1400 on average without parking to a high of $1700 for a one plus one with parking. This was the biggest month for two bedroom rentals this year with 138 units changing hands. Prices ranged from $2000 – 2200. There are also more bachelors on the market with prices averaging $1250 to $1350 for parking. An interesting trend is that units with parking are staying on the market for 15 days while those without are staying on the market for 25-30 days before renting.

All year we have been looking at sales statistics in comparison to last year – 2008. With July sales 28% higher than the same month last year, and year-to date- sales almost dead even, it is a certainty that this year’s sales will outperform 2008 by year end. Last year the market started to collapse by the end of September and the signs were already telling by that time. We had 26,000 active listings and we added 15,000 new listings that July.

SALES COMMENTARY:

By now everyone knows that June was a record month for sales on the Toronto Real Estate Board. Sales were 27% ahead of June last year. For the condo market, sales were up 24% but Downtown sales were 40% higher than June ’08. The Etobicoke waterfront was ahead by 16%. Now the question is: what will happen in the second half of the year? Year-to-date, residential sales at 41,000 units are still 6% below those of ’08. We can already predict that July sales will be almost 30% higher than last year and will come close to matching June’s totals. In 2008, the market slowed over the summer and collapsed in the fall leaving us with 74,500 units sold (the same as 2002). Most experts forecast sales for 2009 of 65-70,000 units. Our own forecasts were for 72-75,000 sales and it looks like we will hit 80,000. Expect summer and fall sales to remain strong – much higher than in 2008 but at lower levels than we are now experiencing.

The Condo market, especially Downtown continues to outperform the overall residential market. Most experts are concerned about the high number of presales from previous years sold to investors that may overhang the market. But most of today’s buyers want to move immediately. And there is a shortage of this product – last year there were 849 active condo listings Downtown in June and this year there were only 757. At the same time, there were 40% more sales, which translates into upward pressure on prices. It is safe to predict that condo prices will only go up for the balance of this year!

This month we examined sales at 70 Mill Street in the Distillery District. We only tracked one unit, but this same unit was sold four times since being built. The unit is two bed rooms, two bath, with parking, two lockers and small balcony at just over a 1,000 sq.ft. The Builder sold this unit at the start of ’99 for $207,000. The same unit sold in’02 for $228,000, at the start of 2007 for $265,000, and in April of this year for $359,000 (it was listed for $349,000)! That’s a 73% increase in just over 10 years or a compounded growth rate of 5.5% – surprise, about the long term historical rate of appreciation with real estate! Today’s sale price at $350 per sqft. is great value for a unit this size. Condo fees are $450 a month and including heat, hydro, and water and are very reasonable too. Taxes in ’08 were just over $2100.

RENTAL COMMENTARY:

We are now entering the peak rental season. 246 one bedroom units were leased Downtown in June with the most popular being a one plus one with parking. The average price was $1600, which is about $50 higher than earlier this year. One bedroom units without parking start at $1400. The entry point for a bachelor without parking is $1200, going up to $1300. 131 two bedroom units were leased from an average low without parking at $1900 to a high of $2200. The market for three bedrooms is small. Expect to pay from $2450 to $3400. Like the sales market, properties are not staying on the market for long – an average of 15 days.

Will One Bloor be built or not? Who cares, except for investors who believe this will be the definitive condo in Toronto. Now that 15-20 floors are to be lopped off, if it is ever built, the project is fast losing its luster.

Speaking from an industry perspective, why do we need another project? We already have lots on the go and the cancelling of a few projects can only strengthen the market -less supply and buyers and investors will be forced into other projects, raising sales percentages all around.

And where is the L Tower? Sold with plenty of fanfare, it is now the I Tower after design changes and still no signs of construction. Just hoarding – the typical developer ruse to make you think something is happening. can anyone fill us in?

The answer is nothing! The stock market has become a game and has little to do with investing in public companies anymore. Instead of buying/investing, you can ’short’, buy derivatives, and just about any index. The VIX index lets you BET – oops invest in the volatility of a stock market e.g. the TSE or Dow Jones over a twelve month period. If that isn’t something straight out of Vegas, I don’t know what is!

My point is that you can play games with your money or you can invest in real tangible assets. The attraction to real estate (besides your personal control) is that your property will produce rental income that can pay down the mortgage on the property over time and then there is capital appreciation over the same period which is the bonus!

Real estate is not a short term play but rather a long term strategy that will build wealth and security for any individual.

A recent study by Scotiabank says that new immigrants will be an important driver of the housing industry, particularly in cities such as Toronto. The study was based on information from the MOST RECENT CENSUS in 2006 which is just now getting released! And it is now appearing in newspapers.

What’s wrong with this picture? We are being fed new information based on three year old stats! If you asked the people on the street about the housing market in 2006 and earlier, we would have told you that immigrants were driving the market and to make your plans accordingly. Immigrants like to live downtown but they are also an important investor group in the condo market. For example our Company caters to the diverse ethnic make up of Toronto. Our agents speak over 35 different languages and we did not have have to wait until 2009 to figure this out.

But why is it that the public is fed information from so called experts who are generally the last to know. We do not have to wait until three months after the fact to find out how the economy is doing. Just talk to the people on the street to get real ‘live time’ information. We knew things were bad last fall, governments learned the facts in February and it is now July. Where are all the big public works projects? Still on the drawing boards. What else is new. Thank goodness the smart people are not relying on old media to get late news.

The Toronto Real Estate Board reported record sales for June, up 27% from June of 2008. Sales were also up 14% from May. And condos outpaced these numbers. But you already knew that would happen if you had been following our Blog!

Where do we go from here? We can tell you that sales will back off from June over the summer but they will remain strong and much higher than in 2008.

But what about the fall market? Last year, the market ‘tanked’ to put it nicely in October due to a lack of consumer confidence and heavy negative press from the doomsayers. At the time, we said the underlying economic factors were fine but people did not believe us. Well the same thing is true today – maybe a little more unemployment but people believe that we will soon be starting to emerge from the recession. But this year we also have a couple of extra benefits for our market. First there are lower mortgage interest rates and secondly the dollar stimulus from all governments has yet to reach the pavement – just talk so far. So whatever trickles down will be a bonus too. Thus we feel confident in saying that the fall market will be much better than last year! It will also be a little slower than July and August of this year. But who’s complaining!

SALES COMMENTARY:

May residential sales from TREB in 2009 were 2% higher than in May 2008. This marked the first month where sales for 2009 exceeded 2008. It should be noted that sales for 2008 peaked in May. Preliminary numbers for June of ’09 suggest that sales will be even higher than in May – about 13%, and almost 20% ahead of June in 2008. Yes the resale market is back! Note we said resale and NOT the new development market. Two questions that are now being asked as the market enters the summer months: Is this the ‘false up’ and why isn’t the new sale market part of the revival?

First let’s talk about the ‘false up’. Doomsayers want you to now believe that this market rebound is only temporary and that we are heading downwards again by September. Their rationale is that we are still in a worldwide economic recession and that it is time for real estate to enter a bigger decline after an eight year run. But all the economic indicators tell you that the condo market is sustainable at these levels. While unemployment is higher, unemployment is no way near the levels of the eighties and nineties. Affordability – real estate prices, mortgage rates, and incomes added together – is the best (lowest) it has been in over ten years! We have no foreclosures hanging over the market – in fact we have a shortage of listings in the resale market and a sale to listing ratio of 60% when a normal market is about 35%. Finally there has been no price ‘bubble’ – just prices rising in the 3-5% annual range – the historic rate of increase for real estate. The earlier correction was only caused by a lack of consumer confidence and not from underlying economic issues!

However the new sale market is a different story. New sale projects are typically $100 -150 per sq.ft. higher than the resale market. Developers are facing a choice – many projects stalled at 50% in presales (lenders want a minimum of 70% to begin construction) either have to slash prices (which they can’t for fear of alienating earlier buyers) or offer big incentives such as free parking, lockers, free upgrades, or no condo fees for two years; or their project won’t get built. This past month, our Company sold new sale units for the first time in four or five months, but only with those that offered big discounts. Other new projects who are not reducing won’t get built. Many of these preliminary buyers will be forced into the resale market or into those new projects that will be built. This will only strengthen the condo market for the balance of this year.

RENTAL COMMENTARY:

Units leased in May were about equal to April. 200 one-bedroom units and 137 two-bedroom units were leased in the Downtown condo market. You would think that with ‘buying’ such an attractive option that rental rates would have started to decline but that has not been the case. Bachelor units are leasing for $1200 on average. One – bedroom units start at $1400 and parking is worth a $100 per month. Two-bedroom units are starting at $1750 without parking and range to $2100. We actually leased 8 three-bedroom units for the first time in months and they averaged $3200. The leasing market remains strong. Renters were paying a 100% of the asking price and units were averaging about 20 days on market before being leased.