August/September-Market Report

Sales Commentary

July sale numbers on the Toronto Real Estate Board confirmed what we have been saying since April, that 2014 will probably be a record sales year. That is not as big an accomplishment as many would have you believe. The previous record for sales was in 2007. The market is simply waking up to the fact that there will be no market correction for the foreseeable future. For July, overall sales were up by 10% over last year and were the second best July numbers on record. Condo sales were even better. They were up by almost 14%. The downtown condo market lead the pact with sales up by 19% and the Etobioke condo market was just behind at 18%. While new condo listings downtown were up by 13%, the ratio of sales-to-new-listings for July increased by 2% to 46% in 2014 from 2013 – a number that favors sellers. While the level of average price increases over the past year – 7.5%, and bigger in the detached house market cannot continue, the lack of good listing inventory will ensure there will not be any price decreases in the short or longer term. That also applies to condos. We met with another Hedge Fund Manager this past week who wanted to understand the Toronto and particularly the condo market and we told them there were only THREE statistics to follow in our market! So let us share them with you. First is the level of immigration into the GTA. It is currently running at 75,000 per year and with normal replacement of housing stock, this translates into an ongoing need of 35,000 new units per year. Secondly you need to look at new condo completions/registrations per year. Don’t be fooled by ‘under construction’ numbers or new condo sales. These numbers are easily manipulated. There is a delivery bottle neck and there has never been more than 18,000 units completed in a single year. When you realize that new low rise completions are trending lower each year – now down to 11,000 units then you see the shortfall. Finally look at the ‘mortgages in arrears’ number for the mortgage industry. That will tell you if owners have to sell at any price and will exert a downward pressure on prices. When the U.S. market turned down in 2008, the number was 7%. In Ontario the number today is .18%. In 2008, it was .31% and the highest it has been was in 1992 when it was .7%. Notice we did not talk about interest rates. They are going to remain low for the foreseeable future. Why the Bank of Canada even issued 50 year bonds at 2.75%! This month we looked at sales at Maple Leaf Square (about 900 units in total) and the north building at 65 Bremner. Located beside the Air Canada Centre and plugged into the Path Network, this is a very popular building for young people. The first unit we looked at was a one bedroom with no locker or parking. At just 490 sf it sold in April of this year for $336,000 or $685/sf. The same unit sold in 2010 – three and half years ago for $290,000. This would produce an annual rate of increase of 4.5%. The second unit we looked at was two bedrooms, two baths with parking but no locker. At 736 sf, it sold in June of this year for $478,000 or $650/sf. This same unit also sold in 2011 and 2012 for virtually the same price. One of the reasons for no price appreciation for this unit is that it faces south and when it first sold, it had a view of the lake. But with the construction of the new Harbour Plaza (two condo buildings and an office tower) directly south, the view will be limited and the market has already factored that into account. The second point is that there is currently resistance for condo prices above $700/sf downtown and this building is almost at its max value for now.

Rental Commentary

The increase in the rental market has been incredible over the last few years. From a market that was considerably small than the resale market on MLS, rentals are now double the size of the sale market. From a tenant perspective, young people seem to favor renting over buying; with the primary reason being that they do not want to be tied down (according to our own internal survey). On the other hand, recent decisions by Revenue Canada have discouraged investors from selling Assignments or selling at closing. It is now better to rent out these units for at least a year to qualify for more favorable tax treatments. In July, studios were renting at $1450 on average. The one bedroom market was a little softer. The basic one bedroom without parking was averaging $1575. The one plus den, again without parking, averaged $1750. Over 54% of all one bedroom units were rented without parking. Parking will increase the base rent by $100/mo. Rents in the two bedroom market held firm. The entry level remains at $2200 on average for a unit without parking. The top of the market is still $2900 for two bedrooms plus den and parking. There is a strong demand for three bedroom units, although only 16 were leased at an average price $3300.

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