LONG TERM REAL ESTATE OUTLOOK:
Before we look at 2007 specifically, we would like to look at the factors impacting on the next ten years for the downtown Toronto condo market. Why ten years? Because we have never been so positive about this market since it became a force in 2000. So here are TEN reasons to be bullish:
1) The primary reason for the development of the downtown condo market was supposed to be the arrival of the baby boomers who had sold their big suburban houses. They still have not arrived in any great numbers and their impact will be felt - but not for another five years.
2) Baby boomers have children - the 'echo' generation and they are currently making their way through college. With parents help, they will all be buying condos in the next ten years!
3) Lifestyles have changed. Young people do not want to cut the grass or shovel snow like their parents. Computers, consumerism and clubbing has much more appeal.
4) Family size is changing. Single parent families, single child families all spell condo living.
5) It's not just people who work in '416' who want to live downtown but also people from '905' who are buying downtown. It's bad enough that you have to work in the 'burbs without living there.
6) Real estate values are cheap compared to the rest of Canada. We know we are lower than Vancouver and Calgary. But in comparison to small town Canada, we are only 30-40% more expensive. Twenty years ago, the price difference was 200-300%. If anything, incomes today are even higher in Toronto versus other centres.
7) Real estate values are cheap compared to other major cities around the world. Waterfront in Toronto is less than waterfront in Croatia!
8) Immigration will continue to be a factor in the market. Toronto is the preferred destination and downtown living is their preferred choice.
9) Inflation will come back in Canada. China is the last market where goods can be made cheaply and that is what has kept inflation down. It is only a matter of time before prices start rising in China and throughout the world. Real estate is a great hedge against inflation and with debt leverage (mortgages), equity returns are even better.
10) Don't' worry about oversupply! New condo developments are all built on a pre-sold basis. New construction costs will start to increase quite dramatically and this will also limit supply as the price differential between the new and resale markets will act as a break.
Historically, annual real estate prices increase by about 5% on average. Given the factors in play, we expect that downtown condo prices will appreciate by 10% per year or more than DOUBLE in the next ten years! Some years will experience better appreciation than others. The key is to stay invested during this run.
LOOKING AT 2007:
We believe that 2007 will be a solid but not spectacular year. Prices should increase by only 5% and sales volumes will level off. This is a great year to readjust your real estate portfolio if you are an investor, or to move if you are an owner/occupier . One-bedroom units will be plentiful and will experience the least appreciation going forward. If you can't afford a two- bedroom unit, then at least get a sizable one plus a den!. For investors, try to find two-bedroom units that can carry themselves. Also bachelor units will still be good investments. Stacked townhouses will grow in popularity as young couples want to stay living downtown. There is a real shortage of three bedroom condo units. Big units will eventually command the premium prices in this market!