February was another strong sales month on the Toronto Real Estate Board with sales ahead by 16 % over February of last year. But this increase masks some subtle changes within the market. When you compare the 905 Region to the 416 Region, sales were up by over 20% in 905 versus less than 8% in 416. In fact, 61% of all sales occurred in the 905 Region. By property type, detached house sales were up 24% for the month versus only 10% for condos. In the Downtown condo market, sales were actually 4% lower than in February of 2011. Why? First off, the mild winter meant that the Spring Market started much sooner in the outlying areas. The Toronto market has always been less seasonal. Secondly, there is a shortage of quality listings in 416 for both houses and condos.
Mid-month results for March confirm these trends. Overall sales are 7% higher for this year than in 2011. The house segment is ahead by 10% but condos by only 4%. In terms of prices, there is an even bigger gap between houses and condos. Year over year, house prices are 10% higher, while condos are up by just 4%, and downtown by only 3% on average. So why do the experts focus on a price bubble for condos and not houses? Our guess is that there is more press to be gained from forecasting a price correction with condos (all those cranes) than with houses.
In this Report, we looked at sales at 7 King East. This is a former office building converted to condos in the late nineties. In terms of location, you can’t get any closer to King and Bay than this prime location with PATH and subway access. The first unit we looked at was a one bedroom plus den with two baths, locker and parking. With 9 ½ ft. ceilings, it sold in November of 2011 for $450,000. At 860 sf, the price was $520 per sf. The same unit sold in 2004 (seven years ago) for $282,000. The annual appreciation was 7%. The second unit we tracked was also on the same floor. It is a two bedroom, two bath unit with parking and locker. It sold in September of last year for $495,000. At 960 sf, this averages $515 per sf. The same unit sold earlier in 2006 for $357,000. Over five years, the rate of appreciation was 6.7%. While these price increases are high by historical standards, they are in no way approaching ‘bubble market’ territory. By our definition, you need double digit increases over three consecutive years. While price increases should moderate, it seems highly unlikely that prices will decrease from current levels. On the other hand, we would be cautious about pre-construction developments which are being offered for sale in the same financial district for $700 per sf without parking.
The rental increases reported in January were confirmed with the February sales figures. Rental volumes for February (usually one of the slowest months) matched those of January. Downtown, nineteen studios were leased for $1350 on average. These listings lasted only nine days on average. The market for one bedroom units without parking starts at $1500. If you want parking or a den, you can add another $125 per month. If you want both the den and parking, the number is $1775 on average. The one plus one with parking is the most requested unit type with just under a 100 units rented at an average 100% of list price. Two bedroom units start at $2100 without parking and will reach $2500 for a unit with den and parking. Interestingly, two bedrooms without parking take about 25 days to lease on average versus just 14 days for those with parking. The rental market is tight and there is little room for tenants to negotiate.