CONDO MARKET REPORT
The spring market is well under way. Sales for March and the First Quarter on the Toronto Real Estate Board were an all-time record. Sales in March were up by 16% over March of 2015. For those wondering if these sales numbers are sustainable, just look back nine years ago to the previous peak and you can see that sales per 100,000 population are LOWER today than in 2007.
However we do preach a word of caution. There is some ‘froth’ to this market and it is not related to the condo segment. Instead we would be concerned with the sale of houses in the two million dollar range in the 905 and areas beyond. Many baby boomers are buying, as they have seen prices increase in this segment by hundreds of thousands of dollars in the last few years. Their expectations are to resell in a few years and make an extra $500,000 tax free to supplement their retirement savings. This is a dangerous strategy as there is no guarantee that the following generation, who are currently living downtown, will want to move to the suburbs and more rural areas, or who can afford these prices. What then?
Turning back to the condo market, all condo sales were up by 25% for March over March of last year. Downtown, condo sales were ahead by 27% and in the Humber Bay market by 6%. The sales increases are a reflection of a bigger pool of condos. Yet when we look at both ‘new’ listings for March and the ‘active’ listings at March end for the downtown market, they are both lower than the numbers for 2015. Yes, the condo market is tightening. The same can be said for the Humber Bay market as well. It is apparent that lifestyle choices for the millennial generation are having an impact on the condo market.
Of course the second factor for millennials who want to live downtown is pricing. The price differential on average between low rise and high rise properties is over $700,000. Over the past twelve months, the price index for low rise has increased by 10.5% versus 6.7% for condos, thus increasing this gap.
Toronto MLS Sales Monthly with Three Previous Years for Comparison
This chart plots monthly MLS sales for the current year and the previous three years. The recurring seasonal trend can be examined along with comparisons to previous years for each month.
Source: Toronto Real Estate Board
ON THE WATERFRONT: 55 Harbour Square
In this Report, we examined sales at 55 Harbour Square on the waterfront. Even though it is one of the older condo buildings downtown, it has been well maintained and features much larger units than the newer buildings. 55 Harbour Square is actually the northern half of 55/65 Harbour Square, together known as “HarbourSide” and legally forms one corporation. While many original residents still live in the building, today it is also popular with baby boomers downsizing, and families with children who can send their kids to the Island School.
The first unit we looked was as a one bedroom with parking and locker. It does not have a balcony and faces north on a lower floor. On the other hand, at 1050 sf, it is bigger than most two bedroom units downtown! This unit sold twice: in 2005 for $265,000 and again in 2016 for $473,000. Today’s sale price is only $450/sf. There are no condos downtown at this price. The increase for this property was 5.8% per year. The second property we examined was a two bedroom, two bath unit with parking and locker. Again it does not have a balcony. But it has lake view from all rooms and is on a high floor. At 1391 sf, it sold in 2009 for $650,000 and then again in mid-2015 for $880,000. That works out to $632/sf which is good value for lake view. The unit has also appreciated at an annual rate of 5.2% over the six year period. When people talk about the average cost per sf in a building, it is easy to lose sight of the fact that floor height and view are critical factors when estimating a value. That is something that no computer program can estimate and which only a skilled real estate agent can do. Currently there are only three units for sale in a building of 300 units. In a normal market, the availability should be 10-12 units.
Urbanation reports that average condo rents downtown are up about 7% over the last twelve month. Our numbers suggest that it is closer to 4%. That’s because Urbanation tracks rents on a per sf basis, and we report them by property type. What developers have done is to shrink the units and hence it appears that rents are not rising as quickly. While critics try to blame higher real estate prices as the main culprit, the reality is that it is primarily the Government who is to blame. Rising property taxes and utility costs running above the rate of inflation (3-4%) have forced landlords to raise rents just to stay even!
Studio condos are now renting for just over $1425 per month. The one bedroom market now starts at $1670 per month for a unit without parking or a den. In March over 700 one bedroom units were rented and 60% of these were units without parking. How do younger people afford downtown living? They give up their car which can be an all in cost of $1,000 per month. The high end of the one bedroom market with parking and a den is approaching $2,000 per month. This month the two bedroom market ranged from $2250 up to $3,000 per month for parking and a den. This was unchanged from last month.
The three bedroom market is starting to emerge. Almost non–existent two years ago, over 25 units were rented out in March. The average rent was $3500 per month. This is another sign that families are living in many of the condos downtown. The other sign of course is the number of day care centers in many condo buildings.