Historically, the second half of the year is characterized by lower sales activity and prices off 1-2% from the spring highs. This year is no exception! September residential sales on the Toronto Real Estate Board were off 2% from September last year, which was a record for this month. On a year to date basis, sales in 2004 are still 7% higher than last year's record. On the other hand, listing inventory is 15% higher than this time last year. Put the numbers together and you have a 'balanced' market. The overall condo market also experienced a 2% decline in sales in September. But Downtown condos were a different story. Sales were 16% higher than September of 2003 while the listing inventory was 23% lower. And yes there were several condo sales that attracted multiple offers! What this means is that the demand for Downtown condos remains strong and will continue. The supply side is more interesting. Right now there are not enough new condos coming on the market but this will be changing next year. 2005 will be a record year for new condo completions. While these units have all been sold, what will these owners do? Move in? Rent them out? Or try to resell them? What we do know is that these owners have substantial equity in their units and don't have to sell them at any price. That means condo prices may move sideways - there will be no major price correction! For condo owners thinking of selling, they should be in the market now, or should be in a position to wait to the second half of 2006. To forecast the Downtown condo market, all one has to do is look at the Etobicoke Waterfront. In September, sales were slightly ahead of last year and listing remained unchanged.
But there are five building coming to completion by year-end and prices are treading water, because of increasing supply.
In terms of prices, we looked at a condo unit that is supposed to be the most vulnerable to price pressure because of over supply - the studio or jr. one bedroom around 500 sq.ft. - the classic investor unit. We looked at sales at 1055 Bay St. The first unit, without parking, was initially sold at pre-construction prices in 1991 for $139,900. It sold in 2002 (the peak of the market for these units) for $167,000 and in 2004 for $158,000. Two identical, slightly larger units (20 sq.ft. more) sold in 2004 for $174,000 and $178,000 - again without parking. Prices are $320-340 per sq.ft., depending on interior upgrades. Are bank economists wrong again?
We are entering the slowest part of the year for rentals. Lease availability for both the one and two bedroom units is running at a 30 day inventory, which is excellent for this time of year. In fact, aggressively priced (under $2000/mo.) two bedroom units have attracted multiple offers no less! While vacancy rates for apartments are over 4%, vacancy rates for condo rentals are just under 1% according to CMHC. Low interest rates attracted many condo renters to become buyers, and rental rates came off by $300+ per month. This then attracted many apartment renters to upgrade to newer condo units with better building amenities. While low interest rates helped to lower rental prices, at the same time they also reduced mortgage interest expenses for investor/owners such that there are still properties yielding reasonable returns.