April was the fourth consecutive month with year over year sales increases on The Toronto Real Estate Board. Sales were 18% higher this April versus April of 2011. At the same time, active listings were 4% higher than a year ago as a result of a 14% increase in new listings in April. Condo sales were also higher in April by 9%. Downtown condo sales were just 4% higher and the Etobicoke waterfront sales were up by 5%. On a year-to-date basis, downtown condo sales for 2012 are still 6% lower than for 2011.
Clearly house sales are outperforming condo sales year to date. Results from prior years show that the annual peak in house sales usually occurs in May, while condo sales peak about 60 days later in July. First half results for May show that both houses and condos are showing a 14% increase in sales over the same period in 2011. This suggests that condo sales are starting to accelerate after a sluggish start to the year. Condo sellers better hope that history repeats itself in 2012 with sales peaking in July.
So why have condo sales underperformed so far? One is that condo buyers are far more particular today than just a year or two ago. Buyers just don’t want hardwood floors, granite counter tops, and stainless steel appliances – the usual standard! They want 9 ft. ceilings, views (which are getting harder to find with all this new construction); and authentic loft features (these are difficult to find too as there is not many buildings left for conversion). As we said last month, new condo product is not matching today’s end user buyers.
Do not get mislead by the year over year price increases of 5% being reported. Currently prices are flat but for those naysayers, prices are not about to decline either! Real estate prices only decline when owners are forced to sell at any price (the U.S. experience). In Canada, no one is being forced to sell. While people worry about today’s low interest rates fuelling the market, there is also a real benefit to these rates. In fact, with today’s lower interest rates, owners are increasing their equity significantly with each mortgage payment. Over a five term, just over 50% of all mortgage payments will go against the principal. Most of the concern comes from those baby boomer experts who started with 11+% mortgage rates which produced minimal principal repayment in the first five years!
In this issue, we tracked prices of condos in Radio City – 281/285 Mutual St. – just off Jarvis. It is a very popular condo with 9 ft ceilings, floor to ceiling windows, and usable balconies! The first unit we looked at was at 285 Mutual. It is a one bedroom, one bath at 573 sf without parking or locker. It sold for $322,000 or $560/sf in 2011. This is the high range of the resale market but it is a desirable building. The same unit sold seven years earlier for $209,000 for an annual increase of 6%. A two bedroom corner unit with parking and locker also sold in 2011 for $439,500 or $555/sf. The same unit sold in 2007 for $307,000 which computes to an annual appreciation rate of 7%. Currently there are only 3 one bedroom units for sale at both 281 and 285 – all listed under $600 per sf.
Overall rental activity downtown was unchanged from last month. Studios continue to lease for just over $1350 per month on average. Over 300 one bedroom units were leased in April. The entry point for one bedroom units without parking is $1550. The average one plus den without parking is renting for $1675 and when you add parking, monthly rents increase to $1700 and almost $1800 for the one plus one. Two bedroom units also increased in price. On average, two bedroom units start at $2100 without parking and average as high as $2700 with a den and parking. Even with these rental increases, carrying costs (with a 20% down payment) will exceed rents for newly completed units by 2013 (that means units bought in 2009 or later) according to CMHC. Not a good sign for investors. But with vacancy rates at less than 1% and units being rented out in 10-20 days on average, there is a strong indication that rents will continue to move upwards.