October marked the fifth consecutive record month for residential sales according to Toronto Real Estate Board statistics. Sales were up 12% over October of 2002 and year-to-date sales are running 8% ahead of last year's record. For condo apartments, sales were ahead by 2% over October a year ago and are still ahead of last year's pace. As previously pointed out, the downtown-detached house has been the strongest performer in the market. In the condo market, demand has increased over last year, but the number of active listings (this year versus the same month a year ago) has increased by 46%! That's the problem. Prices are softer but not crashing as the experts claim. In fact many experts suggest renting as opposed to buying right now. The experts want people to treat buying a condo like timing a stock market investment. Nothing could be more wrong. It's one thing to hold cash; it's another to live out of a suitcase. First and foremost, purchasing a condo is a lifestyle issue. Name me one other asset that you can use and which does not loose its value besides real estate! Why do renters postpone their buying decision because a property might be worth 2-3% less next year but knowing full well that it will be worth more in five years time? What the experts don't tell renters is that by postponing the buy decision now, they are taking a risk too! In fact the risk could be even greater than in buying today! If mortgage rates rise by only 1% then condo prices would have to fall by 10% in order for monthly mortgage payments to remain the same and to leave the buyer in the same position. My guess is that there is a greater chance that mortgage rates will rise by 1%, than for condo prices to decline by 10% in the next year!!
This month we looked at sales at 38 Elm Street. The Minto Plaza with its prime location on Bay just north of Dundas and its well-maintained facilities is a popular condo. We examined sales of two sizes of units. The first was a two-bedroom/two bath unit with parking at just over 1000 sq.ft. Two of these units sold at the end of 2002 for $303,000 and $301,500. The identical unit sold on a slightly higher floor in September of this year for $321,000. Even discounting for the floor level, prices for this type of unit have increased this year! Compare these results to the classic one bedroom with no parking - just over 600 sq.ft. in the same building. The first of these units sold for $187,000 in December of 2001. The identical unit sold in September of 2002 for $188,500 and February of 2003 for $193,000. But the last sale in July of 2003 was for only $180,000. In summary prices for this type of unit are off by less than 4% over the last two years. The reason is that most of the new condo construction is in smaller units and this is where the over supply is occurring. As you recall at the start of the year, we recommended that buyers look at larger units with a minimum of two bedrooms. If only people (read experts) would listen.
We are surprised by the strength of the rental market. Only a few months ago tenants were offering prices up to $200/month below the asking price and being successful. Recently we have seen competing offers for prime rentals with the price above asking!! Yes the rental market is firming. While rents are lower than three years ago, investors can at least calculate what their returns will be. One-bedroom units have climbed back to the $1400 level. Two bedrooms are going from a starting point of $1600 up to $2,000 per month.