JANUARY 2005

REAL ESTATE FORECAST FOR 2005 ? JANUARY
Our forecasting track record over the last two years has been much better than the bank economists. We realize that housing is not just another commodity that you trade but it represents a basic human need and a statement of lifestyle. To understand the market you have to build up your projections from a micro level ? and talk to buyers and sellers. That?s something bankers are incapable of doing! We were also first with our forecast for 2005! Back in August, our newsletter stated that: ?Interest rates will increase, but more moderately than many expect. Prices, in terms of affordability, are still sustainable?you read it here first, the real estate market for 2005 will be good!? We have no reason to change these views but here are FIVE SPECIFIC THINGS we know about the downtown and condo markets going forward.
<br>1) While residential sales for the Toronto Market are forecast to be slightly lower than in 2004, there will be 5+% more condo sales in 2005 over 2004. There are two reasons for this: the number of new condos being occupied and registered in 2005 will peak (new condo pre-construction sales actually peaked in 2002); and secondly the average turnover rate for condos is 3-4 years, versus 7-10 for houses. Hence we will see a lot of movement from people who bought condos in 2001 and 2002.
<br><br>2) While the forecast is for average prices to increase by 5%, we have yet to see an ?average? house or condo. What we do know is that some condo units will experience no appreciation this year and others will go up by more than 10%! Geographically, the better markets will be Yorkville and the Toronto Waterfront. Weaker markets will be those where new buildings are being registered this year e.g. the Etobicoke Waterfront, City Place. Bigger units (starting at one bedroom plus, with parking) will outperform the smaller units too.
<br><br>3) Some people still want to talk about a ?housing bubble?. A sudden drop in prices occurs when a previous price run up has exceeded the ability to pay for it. Looking at our market, the major concern short term would be in the detached house market where significant price increases have occurred which may not be supportable if interest rates rise too quickly. This has not happened in the condo market and for many people wishing to live downtown; condos have now become the affordable alternative. Believe it or not, condo prices may actual be more stable than the freehold market!!
<br><br>4) The ?hot ?condo style property in 2005 will be the Townhouse or stacked townhouse. The condo market is still being driven by the under 35 buyer. The influence of ?empty nest? buyers has yet to be felt and we do not expect them to be a major factor for another couple of years.
<br><br>5) For investors, the vacancy rate for rental condos is less than 1% (rental apartments are 4%). It is estimated that investors represent about 20% of all new condo purchases. In looking at returns, investors need to look at both the cash-on-cash return from rental income PLUS property appreciation. For 2005, many opportunities exist for yields in excess of 10%.


Subscribe to our Monthly Market Reports