May/June 2008 Market Report

Sales Commentary:

April was the third month in a row where sales were lower than the same month last year on the Toronto Real Estate Board. Only in January, when buyers were trying to beat the New City Land Transfer Tax, were sales higher than the previous year. It is also safe to say that May's sales will be lower too! In terms of numbers, residential sales were off by 7%. But for the first month, the listing inventory was 18% higher than the same month in '07. That is the telling factor!

Remember that we have always stressed that real estate is not a national market, although it makes for a good story. Real estate is not even regional but is a local market. Unlike other commodities, you cannot 'truck' excess capacity i.e. listings from one market to another. Economists simplistically think that excess bungalows for sale in Brampton will drop the price of penthouse condos in Toronto.

So let's skip the rhetoric and focus on the facts that only we have access to in the Downtown Condo Market. Condo sales were off by 12% - all of it happening in the area east of Yonge Street. In fact west of Yonge and the Etobicoke Waterfront, sales were even with last year. But what Buyers and Sellers need to focus on is the SALE-TO-LISTING RATIO. Last year it was 52% (east of Yonge it was an incredible 96%) and this year it dropped to 46%. Remember that a balanced market runs at 25-35%! While buyers may be in a stronger position than last year, condo sales in April averaged 101% of list price! The message is clear to sellers. Price it right and it will sell. Be greedy and be prepared to sit with all the overpriced listings! Finally, this is still a good real estate market - the fundamentals for the condo market have not changed.

This month we looked at sales in the DNA building at 1005 King St. West which was registered in 2006. DNA is one of the hottest buildings in the trendy King West market, the preferred area for first time buyers. We looked at two one-bedroom units with parking. The first unit, at 645 sq.ft. was sold in December of 2006 for $240,000and was sold again in April of 2008 for $277,500. Another unit, measuring 650 sq.ft. with parking, was sold in January of '07 for $249,000 and then 12 months later for $279,000. The key points are: prices are averaging $430 per sq.ft. and prices are rising at 12% annually in this building.

Rental Commentary:

People still want to know what an entry level - bachelor unit Downtown goes for - $1100! But the average bachelor unit will rent for $1200+. In the one-bedroom market, over 170 units were leased in April with an average stay on the market of just 15 days! The rental market is picking up. Expect to pay between $1400 and $1500 for a one-bedroom. The two-bedroom market recorded over a 100 rental leases in April, which is a much bigger number than a year ago. Rental rates ranged from a low of $1850 without parking to a high of $2200+ for parking and a den.Three-bedroom condo apartment rentals are scarce but if you find one, expect to pay $3500+.

TORONTO CONDOS ATTRACTIVE TO FOREIGN BUYERS

We always knew that foreign investors liked our condos. Our Company sells a lot of these properties every year to these kinds of investors.

Now the world read ECONOMIST Magazine in its April 5th edtion confirms our views. It compares house prices around the world in terms of over and under valued and where a housing bubble is most likely to happen. Now we have never believed in national real estate markets - they are defintely local, but you can use their findings for general trends. The Economist has compared average house price increases over the last TEN years against corresponding increases in incomes and declining interest rates to determine where prices should have increased over this period if affordability remained fixed. It looked at the top 20 countries in the world. House prices were overvalued in Ireland by 30+%. Britain was at 28% and the U.S. was at 11%. All are experiencing house price declines in 2008.

Only two countries had negative numbers - Austria and Canada at minus 3%. That means prices in Canada could rise by another 3% on just affordability alone. Now these numbers are for Canada as a whole and when you consider Alberta, and Saskatchewan with price increase over 50% in the last two years, and Ontario having the lowest increases in prices in Canada, then Toronto condo prices have a long way to go. The 'locals' don't seem to get this, but foreign investors, who look at the world markets sure do.

And when you factor in our currency - sure it is stronger against the U.S. dollar, but it is still relatively cheap when compared to the Euro and British Pound.

Why is it that Canadians have less faith in themselves and their country than people looking in from the outside??