Last month we asked the question: has the Toronto real estate market peaked? Residential sales for July were 1.5% lower than sales for July of 2011. For the condo market, sales were down 11.7% from the same month last year. The downtown condo market was the weakest of all - down 20% in July and now off 11% on a year-to-date basis from 2011. At the same time, active listings are 16% higher than this time a year ago. For downtown condos, active listings are 27% higher and the sale-to-list ratio has dropped from 26% to 23%. While detached housing is holding steady, it is apparent that the condo sales market has turned. Why? It is not that people do not want to live downtown. Rental activity is at record levels and people are opting to rent rather than buy. For investors who are leasing their units that's good news. Average rents have increased by $150/month since the start of the year. If rents continue to escalate, these renters will become buyers within the next 12-18 months.
Still, many investors and we believe owner/occupants are waiting for the Assignment Market to proliferate with buying opportunities. What is an Assignment? An Assignment is an agreement to purchase the right to own and usually occupy a condo that is not yet registered, from a seller who originally purchased the unit from the builder. In the past, these sellers bought units from builders and were able to resell the units for considerable profit. Now many of these buyers will be forced to sell at prices that do not include any profit. Why? Resale condo prices have leveled off and prices are no higher than many investors paid for new projects several years ago. Adding to the challenge for these sellers is that Assignments historically sell for 10% less than resale prices, and you begin to see the problem and the opportunity. With new tighter mortgage rules, many investors will not have the option to rent out their units but will be forced to sell, which will add to the downward pressure on prices.
Long term, the condo market remains a sound investment choice. People will continue to want to live downtown - by lifestyle choice and by population growth. Short term market changes present great opportunities for savvy investors and owners who work with agents that specialize in the condo market.
For those people who want to be in the absolute centre of Toronto and walk to everything, we tracked sales at One City Hall (Elizabeth St. just off Bay and opposite the Eaton Centre). We first looked at two one-bedroom units. The first at 560 sf with parking, locker and balcony sold for in July of this year for $352,000 or $628/sf. The same unit sold for $279,500 five years previously. That works out to an annual appreciation of just under 5% per year. The second, one-bedroom unit was 592 sf with locker but no parking and it sold for $345,000 or $582/sf which is more in line with Bay St. prices. So if you apply the same $582/sf to the first unit, the extra value of $26,000 can be attributed to the parking spot! This same unit sold three years previously for $300,000 and it too has appreciated at just less than 5% per year. The only two-bedroom unit with a sales history in the building sold a year ago for $529,000. This unit also has a den, two baths, parking and locker. At 1044sf, it sold for $510/sf. The same unit sold in 2007 for $471,900 which represents just a 3% annual price gain. It's hard to understand from this analysis what the Federal Government is trying to achieve with more restrictive lending rules aimed at slowing sales and prices in the condo market.
As noted above, the rental market is extremely tight with rising rents and rental volumes. While studio rents remained fixed at $1400 per month on average, the entry level for one-bedroom units - no den and no parking is now $1600! The high end of the one-bedroom market (parking plus den) is now $1850 on average. Over 550 one-bedroom units were leased in July - most for September 1st occupancy which is double the volume of the spring market! The entry level for two-bedroom units pushed to $2100 on average. Expect to pay upwards of $2600 for a two-bedroom with den and parking. One two-bedroom rental even attracted 14 offers! Days on market for even two-bedroom units is averaging just 8 days! Over 270 two bedroom units were leased - again double the normal volumes.