August sale numbers continued the trend which began in May of this year when the spring market finally kicked into gear. Sales were 2.8% higher than for August of 2013. All condos were up by 4.8% and downtown condos were ahead by 3.9%. At the same time both total active and new listings declined for the month by 5% and 3% respectively.
Sales results for the first two weeks of September showed that sales were 6.6% higher than for the same period of 2013. Continuing this sales pattern will produce year-end sales of 93,000 units on TREB. This would equal the all-time record set in 2007. As we recall, that is what we predicted in January of this year. Some experts think that these sale numbers suggest an overheating of the real estate market. Our view is that the population in the GTA is 900,000 greater than in 2007 and these numbers, if anything, are lower than what would be normal.
What is of concern is the rise in prices of detached houses downtown. Rather than blame buyers, the fault lies solely with our Municipal Government. The City Land Transfer Tax has not deterred buyers but rather sellers. People are staying put rather than moving. By not moving, owners can save $30,000 in taxes which they can use to renovate. With public transportation woefully short, why would a Government decide to repair not just one or two but all major roads downtown? Commuting is impossible and walking is the easiest alternative. People want to be closer to work and do not want over two hours of commuting every business day. Look for detached sales to slow further and prices to continue to appreciate at 10% per year.
When you look at condo listings, it would appear that there is ample supply. But there is a shortage of larger condo units. There is also an excess supply of condos with 8 ft. ceilings (young people insist on 9 ft. and higher) and those in less desirable neighbourhoods. The problem with our market is that it takes 4-5 years from preconstruction sales to delivery. End users are never going to buy that far in advance, meaning only investors buy at the start. Again, thanks to our tax structure, smaller units make better economic sense for investors. Hence the miss match of unit sizes will only get worse going forward.
So what has this done to condo prices? This month we looked at sales at 77 Harbour Square. An older condo, built in the ‘80’s, it is located on the waterfront and has superior amenities which
appeal to both younger and older people. The first unit we looked was a one bedroom with locker and parking. The last sale was in August of this year for $356,000. At 614 sf, the price is just under $600/sf. Previous sales were $287,000 in 2008; $222,000 in 2002; and $159,000 in 1998. Over the last six years, the average rate of appreciation was 4%. The second condo we tracked was a two bedroom, two bath unit with parking and locker. There also were four sales for this unit from 1997 until August of this year. The 2014 sale price was $610,000. At 1191sf, that works out to $515/sf. The same unit sold for $430,000 in 2007 and for $265,000 in 1998 and $233,000 in 1997. Over the last seven years, this unit appreciated at 5% per year. Currently there is only one unit for sale out of 400 units in the building. When you look at all of Harbour Square with five buildings and 2,000 units, there are only 14 units for sale. Is condo size more important than the age of the building when it comes to buying a condo in 2014?
August is the busiest rental month of the year. Universities and businesses all gear up for a September kick off. There were over 1,000 condo rentals leased versus just 450 sales in the downtown core. We don’t believe that the sales market is ‘hot’ but we do believe that the rental market is ‘hot’! The average days-on-market for rentals, ranged from 7 to 13 days, depending on the type of unit. There were multiple offers and in many instances the leased price was above the list price. In the studio market, the average rent was $1450. Rents in the one-bedroom market increased by $25-50 per month from July. The entry level one bedroom without parking was $1600. A one bedroom with den but no parking had an average list price of $1750 and an average lease price of $1800! The starting point for the two bedroom market without parking remained at $2200 per month, as did the high end with a den and parking at almost $2900 per month. There were 14 three bedroom units leased in August at an average rent of over $3500 per month.
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