MARKET COMMENTARY - MARCH / APRIL 2008

Sales Commentary:

February was the first month where sales were actually lower than the same month last year in the past twelve months. The Toronto Real Estate Board reported that residential sales were down by 11%. For condos, sales were off by only 3% but Downtown condo sales were lower by 15%! Already the so-called experts are saying the market has turned. The only problem is that they don't have all the facts! Believe it or not weather and snow had a big impact. Real estate sales are not 'date sensitive'. People don't have to buy on a particular date. If the weather is bad, they just stay home. And the snow storm on the first weekend in March will impact March numbers as well! How many people remember SARS five years ago? For two months people would not leave their property except to go to work. As a Company, we even talked about buying masks for people to wear when we showed properties. Sales were that bad. But the market fundamentals had not changed and the market resumed its upward trend after the SARS scare.

So where are we today? Market fundamentals have not changed. In fact we think the market is stronger today than at the end of last year. Forecasts for the Ontario economy suggest that growth may reach 2% this year as opposed to earlier forecasts of less than 1%. We can tell you that parts of Ontario will actually shrink which means that the GTA economy will probably grow by at least by 3%. Incomes are rising, and with a half percentage drop in variable mortgage rates, there are lots of buyers! How do we know? All our agents have qualified buyers lined up. The problem is that there are not a lot of listings to show them yet! The sales-to-listing ratio is currently 45% - a normal market is in the 25-35% range. The first sign of a changing market is when listings swamp the market. The second is when affordability is eroded. Neither exists in this market!! We are not naïve enough to believe that this market will go up forever. However the time for a slump is not this year.

In this issue, we looked at sales in Marina Del Rey - 2261 Lake Shore on the Etobicoke waterfront. There are three buildings on a great piece of property with a stand alone recreational facility. Units are larger and while the buildings are older, they are well-maintained and represent good value. While other condo markets increased in value, the Etobicoke market was flat for a number of years and only in 2007 did prices begin to increase. The first unit we tracked was a one-bedroom loft, just under 900 sq.ft. with parking. The unit has been renovated and sold for $247,000 in December. The very same unit sold twenty one months earlier for $245,000. A similar unit, not renovated, sold for $196,000 in 2004. It was renovated and was resold in February of this year for $255,000. When you back out the renovation costs, the appreciation was only 10% over three years! Prices are $280 per sq.ft. The second unit we examined was a two-bedroom, two storey loft at 1040 sq.ft. It was partially renovated and sold in January for $290,000. We tracked similar units that sold for $240,000 in 2004; and $275,000 in late 2007 that were not renovated. Again this unit is selling for $280 per sq.ft.

Rental Commentary:

Over 100 one-bedroom unfurnished units were leased Downtown in February. The average price was $1525. Only 17 furnished suites were leased at an average of $1775. There were 62 unfurnished two-bedroom units leased for $2100 on average. Eight furnished two-bedroom units averaged $2500. The differential between furnished and unfurnished is $250-500 per month. Compare this to the monthly cost to rent furniture which is quoted at $300 for a basic one-bedroom. Days-on-market to rent out units has increased from the 15 day range to 20+ days. The rental market usually begins to heat up in May through September. Again the weather has slowed the start of the rental season.

REAL ESTATE MARKETS ARE NOT NATIONAL - THEY ARE LOCAL

Why is it that experts have to talk about real estate as one big market when it is not! Not all of the U.S. market is under siege. The high end (over $5 million) has had seven and thirteen percent increases in sales for the past two years and is up again this year. Of the 150 metro markets in the U.S., median prices were falling in 77 (what the press is reporting) but were increasing in 73 (what the press forgets to talk about)!!

Another trend in the U.S. is that the urban markets are outperforming the suburban markets. Unlikely cities such as Pittsburgh, Columbus Ohio (one of the states devastated by the market down turn) and Atlanta have rising sales in their  downtown markets. And in metro markets that report separate condo sales, 41 out of 59 markets report rising condo prices!!! How is this possible if the U.S. real estate market is as bad as we are told?? Let me quote Garth Turner from his latest real estate book on doom and gloom: "an anti-real estate mood has swept America. Within months it will be here". No facts but it is good for book sales. 

So let's look at the Canadian market again. Prices and sales are slowing in the West and we are told it is coming to Toronto - just like a bad cold. When prices increase by 51% in a single year in Saskatoon, what do you expect? A correction. We have never had that type of sales hysteria in Toronto. Just a steady market with good fundamentals. Let me just leave you with the latest story from our Company. We listed a condo at $799,000 and sold it in a week for $890,000 with multiple offers. That's a price of over over $800 per sq.ft.  Is this a sign of a market correction this year? Not likely! The point is that Turner is right, there is always a market correction or slow down coming. Turner claims he called the last one - only he was 4 years too early! My guess is that Turner is early again - maybe not 4 but at least by 3 years. Do you want to be out of the market that long with prices rising! Turner's  hysteria makes for good book sales but lousy economics for home owners and investors. 

CONDOS SALES LOWER IN FEBRUARY

Initial numbers from the Toronto Real Estate Board show that overall sales were 11% lower this February than in February of 2007. Condo sales were also off by by 8%. Already the naysayers - read bank economists - are saying the market has turned!

But people in the market every day are seeing something quite different. The real estate market changes when there is a surplus of listings versus buyers. Buying and selling property is not date sensitive. What we mean by that is: people don't have to do something on a specific date. When it snows, people just stay home rather than go out and look at properties. And we have had record snows!

Anyone remember SARS five years ago? Buyers were talking about wearing masks and people and properties owned by those from the Far East were to be avoided. For two months markets were slow because of the hysteria - not because of any economic reasons. And then it was behind us and real estate markets resumed their upward climb.

Again today, the economic factors have not changed. We can tell you that there are still lots of buyers - more than the supply of good listings. And the fundamentals remain in place - job growth, income growth, and now lower interest rates. Those factors tell us that the market this Spring - when it arrives - will again be strong - lots of sales and rising prices!

If you want to be smart - beat the market. Start the buying process now - before others get into the market. If you have a property to sell act now and have the market to yourself. And for buyers, making an offer now will improve your chances of avoiding the dreaded 'multiple offer' scenario.