Sales Commentary
The sales numbers for August and the first two weeks of September were not what Sellers and Realtors were hoping for. In August, residential sales for the Toronto Real Estate Board were 12% lower than in August of last year. Condo sales were down by 24% and in the downtown market, sales were off by 34% versus August of 2011. For the first two weeks of September the downward trend continued: residential sales were 15% lower than for the same period a year ago, while condo sales were down by 28% and 32% for downtown condos.

This is just the type of news for which the naysayers and media were waiting. The end is near. Falling sales will translate into falling prices within the next few months. It works in other types of markets, why not real estate? Well the peak year for sales on the Toronto Real Estate Board was in 2007. Therefore real estate prices should have been falling over the past five years according to their logic. But the only price correction we experienced was in late 2008 with the worldwide financial crisis which was understandable. That lasted about eight months. Today we are not facing the same levels of uncertainty. Employment continues to improve, albeit slowly, and our low interest rate environment is not going to change for the next two years at least. So where are the affordability issues? Mortgage arrears in Canada are now trending down from 2010 at .4% of all mortgages. For your information, the peak was in 1992 at just over .6%.

So why have condo sales in particular slowed? People still want to live downtown. Condo prices have levelled off while house prices continue to increase. Our guess is that people have been convinced that renting is the better option right now. All markets take a breather and when people come to the realization that the condo market is not going to crash, they will return in record numbers. Our guess is that this period of lower sales - will last into the spring market of 2013. So today's market is not bad. In fact it's a great market for buyers. One of the few times buyers are in control this decade. It's also a great time for people who want to upgrade. While entry level prices tend to remain fixed in slower markets, higher priced properties usually decrease in value and the price difference to upgrade becomes smaller, making it more affordable to move.

This month we examined sales at 33 Lombard - Spire is a 45 storey glass tower at Church and Adelaide. The first unit was a one-bedroom with a balcony and locker but no parking. It sold in February of this year for $335,000 or $640/sf. The high price is a result of 9 ft. ceilings and a high floor with great views. The same unit sold in 2008 for $286,000. That works out to an annual increase of 4%. An identical unit also sold in 2012 for $40,000 more - but it had a parking spot! We then examined two, two-bedroom units. They are identical corner units with two baths, parking, locker, and a large wrap around balcony. Both sold in May of 2012 for $610,000. That's a price of $695/sf. But if you adjust for the parking spot, the price per sf is almost identical to the one-bedroom. One of the two-bedrooms previously sold in 2011, for $590,000 which is an annual appreciation of just 3%. The other unit sold over three years ago, and over that time frame the annual appreciation was 5%. The point to be made is that the appreciation of condo units is certainly within a non-speculative range and that the rate of appreciation is slowing. Compare that to annual price increases for detached housing in Toronto which are in the 10% range. That is where the concern should be focused.

Rental Commentary
While the condo sales market has cooled, the condo rental market remains hot. Multiple offers on rentals have become the norm. Many offers went over list price. The end result was that rents have continued to rise over the year, and at a much higher rate than the increase in real estate prices! This is welcome news for investors and should make renters rethink their options. Studio apartments rents seemed locked in at $1400-1450 on average. Over 360 one-bedroom units were leased downtown in September - 50% higher than normal. The entry point for one bedroom units without parking is now $1650.The price difference for a den is now $200 instead of $100. A one plus one with parking will now average $1950. Days-on-market for rentals is just 5 days. Over 200 two-bedroom units were leased in September starting at $2200 without parking. A two plus den with parking will lease for an average of $2650. Five three bedroom units were leased in September at an average of $4200.

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