JANUARY 2011 MARKET FORECAST

Condo Market Report2010 IN REVIEW: At the start of 2010, we predicted that the year would be made up of two parts: a strong first half with no real estate bubble and a drop off from July onwards. Other forecasters picked up on our theme and started to sing the same song by May and June. As the fall market continued to rack up monthly year over year decreases of 20%, we told you that the market had already bottomed in August but the experts were still predicting a serious decline. With that as a background, we are more bullish for 2011 than most of the experts who believe that Toronto sales will decline by 5% in 2011, which means back to 2004 levels! We also don’t believe that prices are overvalued by 10-25% as international experts keep claiming. Our pet peeve is that most experts keep talking about national markets, where real estate is localized, and prices can vary significantly between neighbourhoods and condo buildings. WHAT TO LOOK FOR IN 2011: First we believe that Toronto real estate in 2011 will be ‘steady’ and decidedly unexciting for those who want wild swings in prices and sales volumes. Mortgage rates will fluctuate in a narrow band. Governments heading into elections are unlikely to announce more taxes for consumers, and the economy will slowly gain strength in the Toronto Region which will mean both reported ( and the growing unreported) incomes will be higher. Power of Sale or Foreclosure sales will be minimal (unlike the U.S.) hence there will be no downward pressure on prices. What makes the downtown condo market unique is that there are really two components: the resale market and the pre-construction market. The resale market is dominated by end users. The pre-construction market is almost entirely investor driven. Over the past year, the investor mix has switched to mainly ‘all cash’ buyers from Asia and the Middle East. Downtown condo prices are still relatively cheap versus other areas of Canada and other major cities in the world. On the other hand, condo rentals rates are currently too low to attract certain investor types to the pre-construction market. This will lead to a levelling off on pre-construction prices and a spill over into the resale market which historically is $50-100 per sqft lower than pre-construction. WHAT TO EXPECT IN 2011: 1)      Toronto resale volumes will be the same as in 2010. Prices will increase by 5%. The best time for buyers will be in the first quarter of this year. Most experts will not recognize the strength of the real estate market until the third quarter. 2)      The downtown condo market will see sales increasing by 10% and prices up by 3-5%. Condo rental rates will increase by $100 per month on average. The current vacancy rate for rental condos is under 1% and for apartments it is about 2%. Condos are renting in 10-15 days on average. Expect that trend to continue. 3)      Bigger condo units are now selling at the same price per sqft as smaller ones. Going forward, two bedroom plus units will sell for more per sqft than one bedroom units. 4)      More and more units will be sold by Assignment rather than resale as investors of pre-construction units opt to sell rather than to rent out their units. 5)      Until rental rates increase, the price of pre-construction condos downtown will stall at $700 per sqft. The ceiling for resale units appears to be $600 per sqft. Both markets are very active in the $500-550 per sqft range.

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