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Market Report July / August 2014[/caption]
June was another excellent sales month on the Toronto Real Estate Board. Sales were up by 15% over June of last year. We were looking for 10,500 sales but we only reached 10,180. On a year-to-date basis, sales are just under 49,000. Historically the first half year usually represents 55% of annual sales. Given the slow start to the year with severe weather, the number is probably closer to 52%. On that basis, we are looking at year-end sales of 90-94,000 units which would make 2014 either the best or second best year on record. The condo market outperformed the overall market with sales up by 20% over June of 2013. Downtown condo sales were ahead by 21%. It is true that more new condo listings came on the downtown market this June – 9% more. However the actual sale-to-new-listings ratio increased to 48% from 43% last June. This is another indicator that the condo market is not suffering from oversupply but rather that the market is swinging to a seller’s market with these numbers. The Etobicoke Waterfront condo market also improved with sales up by 11% and the sale-to-new-listing ratio holding steady at 36%. Even with these strong numbers, why is the preference still to rent? One reason is that The Bank of Canada keeps warning us that these low mortgage rates won’t last forever and are bound to rise, and that we may not be able to afford higher rates in five years. But this same Bank of Canada just issued 50 year bonds at 2.75%! Obviously financial markets think low rates are here to stay for much longer than five years! One of the most maligned sub markets is the condo hotel market. People purchase individual condo units; just as they would do in other buildings, with the hotel component usually located on the lower floors. While owners can use the hotel facilities, condo fees tend to be higher. As well, lenders are cautious about lending in these buildings because of the risk of hotel failure falling back on the individual condo owners. Lenders now require a larger down payment of 20% or more. This month we decided to look at the Pantages Hotel Condos at 210 Victoria Street – a block from Yonge and the Eaton Centre. One of the reasons was to identify the size of the discount associated with these condos. The first unit we tracked was a one bedroom with locker but no parking. Located on a high floor, it sold this year for $352,000 or $580/sf. The same unit sold previously in 2007 for $254,000 (the previous market peak) and in 2005 for just $192,000. Looking only from 2007 until today, the unit appreciated at just under 6% per year. For a small unit the discount price to market is negligible. We then looked at a much larger unit of over 1,000sf. It has two bedrooms, two baths, and parking. It sold in January of this year (the worst time of the year) for $467,000 or just $450/sf. The same unit sold in 2010 for $465,000. It is interesting to note there is a smaller two bedroom, two bath unit for sale that is asking $600/sf. In our opinion the larger units in this building should sell for $525/sf which again is a minimal discount. Condo fees are 72 cents/sf/mo which is a little high but includes heat, hydro, and CAC. There are currently six units for sale in a building of 409 units which suggests solid price support.
Rental transactions for June were 15% higher than in May. Compare that to sales which peaked for the year in May, as June sales were slightly lower. Not only are transaction numbers higher in the rental market; there are also more multiple offers, and prices/rents are also edging upwards. The other trend is that landlords are becoming very selective in approving tenants. We are seeing more turn downs for a variety of reasons. Just because a potential tenant has first and last month rent is no guaranty of acceptance. The average studio rent is now back to $1400 per month. In the one-bedroom market, the entry level is still $1600 per month without parking. About half the one-bedroom units are rented without parking. The one bedroom with den and parking is still averaging $1850 per month. The two- bedroom market has become the hottest rental market. A basic two bedroom without parking now starts at $2200. Expect to pay $2900 for a den and parking with your two bedroom unit. We are now starting to see more three bedroom condos in the rental market. In June 15 units were rented at an average price of $3600.