The Spring Market has been more unpredictable than the weather so far. January through March, sales were weak. Then in April, overall sales as reported by The Toronto Real Estate Board were only 2% lower than for April of the previous year and downtown condos were off by just 2.4%. But through the first two weeks of May, overall sales were down by 9% and downtown condos were off by 13% from the same period in 2012. However by the end of May, sales had recovered and were only off by 3.4% overall and by 9% for downtown condos.
Now the first two weeks of sales in June are out and overall sales are ahead by 4.3%, while downtown condos are up 2% over the same period a year ago. Thank goodness summer is here and maybe there will be a return to more normal markets.
The biggest concern with buyers seems to be our downtown condo market. People who don't live or work downtown are suddenly the experts. But just ask the people who are in the market every day. There are lots of buyers but many are spooked. They are told that declining sales are a signal for falling prices. That may work in many market but not real estate! The only time prices will decline is when people are forced to sell at any price as opposed to taking their property off the market. So what happens when condo resales start to outperform 2012 on a monthly basis going forward? Will prices increase? No! Currently 'active' listings are just 3% higher than this time a year ago but 'new' listings in May were actually 13% lower than in May of 2012 when the market began to change. Fixed mortgage rates (based on the bond market) are just beginning to creep upwards. Contrary to what the experts believe, almost 90% of first time buyers opt for fixed mortgage rates of five years. These first time buyers buy real estate like they buy groceries: what will it cost me per week or per month. Hence a rise in rates may eliminate a few buyers at the margin and this will maintain our price balance. But for those buyers sitting on the fence, now is a great time to enter the market - there is a decent supply of condos and with a 90 or 120 day rate guaranty to lock in today's mortgage rates - this will be the best opportunity to get into the condo market on a monthly carrying cost basis.
This month we looked at sales at Zip condos in the trendy Liberty Village market. This is a Monarch built condo with lots of amenities that appeals to younger buyers. The first unit we looked at was a one bedroom without parking or locker. It is just 494 sf but has an oversized balcony of 200sf. It sold in January of this year for $275,000 at 98% of list price; or $550 per sf. The same unit sold in June of 2009 for $220,000. That's an appreciation of 25% over 43 months or 6% compounded annually. The same unit on a higher floor is currently listed for $289,000. The second unit we looked at was a two bedroom, two bath unit with parking, locker and a balcony. At just over 800 sf, it also sold in January of this year for $436,000 or $545 per sf. The interesting point with this unit was that it previously sold in 2010 for $450,000 - a drop of 3% in value! The very same unit on a lower floor is now listed for sale at $449,000. In summary, Zip units are selling for about $550 per sf and prices are stable. This won't make news but that is the reality of our market!
As we commented in our last Report, rental prices continue to remain flat. While demand by young people to live downtown remains strong, there is an increasing supply of rental units. That's because the most tax advantage situation for investors who have purchased pre-construction condos is to rent them out for at least one year, given that Revenue Canada has deemed the sale of Assignments to be income and not capital gains. The average studio still rents for $1400. Just over 500 one bedroom units were leased in May as we approach the peak of the rental market. The basic one bedroom without parking averages $1525; with the most popular rental - a one bedroom with den and parking leasing for $1825. Because there are fewer two bedroom units, prices did edge up slightly. The two bedroom, without parking average $2200. The bigger two bedroom units with den and parking now average $2900.