January is in the books – TREB sales are up 8.8% over January of 2011. For February, sales are running about 9% higher than the same month in 2011. So where does that put those people calling for a market correction in 2012? It certainly won’t be the spring and summer markets, so guess we will have to wait until the fall to prove the bears wrong! On the other hand, the condo market has been the slowest segment of the market. Overall condo sales were down by 1%. The supposed red hot condo market downtown produced a drop in sales in January of 10% compared to 2011. At the same time, ‘active listings’ were 22% lower! There is the problem with the condo market. Last spring we had almost 1500 listings downtown and the bears were saying that the condo market cannot absorb all these listings. Today we have just over 800 active listings.
However, our biggest concern is that there is a growing disconnect between the resale condo market and the pre-construction market. The resale market is populated by end users who have real jobs and mortgages. The pre-construction market is investor based. Investors are betting that prices will keep on rising. When we suggested in our 2012 Forecast that $800/sf was not sustainable and that the real market is in the $500 to $600/sf range, we received some criticism from the development industry. In January we are starting to see developers offering more incentives, including some price reductions, to sell these new projects.
To prove our point, we looked at resale prices in one of the more popular buildings on the Toronto Waterfront – the Waterclub at 8 York St. This 8 year old building with great views and amenities is very popular with first time buyers. The first unit we tracked was a one bedroom, one bath, with parking. On a high floor but with a city view (no water), it sold first in 2004 for $206,000. It sold again in 2011 for $330,000! Over seven years, the property has appreciated by 60% or 7% per annum. At 555 sf, this calculates at just under $600/sf. (If you remove the parking spot, the price would be $535/sf). The second unit we examined was a two bedroom, two bath with den and parking. It sold in 2004 for $383,000. The same unit sold again at the end of 2010 for $587,000. Again the rate of appreciation was 7% per year. At 1092 sf, the unit sold for $537/sf and it possessed great water views. When prices are rising at 7% (and salaries are not keeping pace), there must eventually be a levelling off of prices. Historically, real estate prices tend to increase in the 3-5% range.
January, usually one of the slowest rental months, was extremely active. Fifteen studios were leased along with 268 one bedroom units, and 136 two bedroom units in the downtown market. While rental numbers were slightly higher than a year ago, we see a significant increase in rental rates. Today, studios rent for just under $1400 versus $1250 a year ago. The average rent a year ago for a one bedroom unit without parking to a one plus one with parking was $1450-$1650. Today the range is $1550 -$1750. For two bedroom units, the range last year was $1850 -$2200. Today one can expect to pay from $2100 without parking to $2500 for a unit including den and parking. We are already seeing the type of increases we predicted in our 2012 Market Forecast. Note that most condo units built after 1997 are excluded from rent controls.