CONDO MARKET REPORT
On one level, sale results for October suggest that this market will continue indefinitely. Overall, sales on the Toronto Real Estate Board were ahead by 11.5% compared to October of last year. But there are signs that these sale increases cannot continue. ‘Active’ listings are down by 34% from last year at this time, and ‘days on market’ has shrunk to just 16 – meaning that we are running out of saleable properties.
In 2015, sales from September to October increased by 7.5% (which is normal). In 2016, sales from September to October declined by 1%. This slowing is a direct result from less listings on the market. Demand (buyers) has not slowed down and the Home Price Index for detached housing in Toronto is up by 19% in the last year. This shortage has now transferred into the condo market (even with all those cranes).The result is that condo prices are up by 12% year over year.
Looking more specifically at the downtown condo market, sales were 22% higher in October over October of last year. In the Humber Bay market, the year over year increase was 30%. For the first time ever, ‘new’ listings for the month equaled the ‘active’ listings total. Average ‘Days on market’ were just 20. The condo market is starting to resemble the house or low rise market in Toronto in terms of market tightness.
Of course, many people want to know about the ‘Trump’ effect on the Toronto real estate market. First, do not expect to see many Americans moving to Toronto. But, what you will see is many more people from other countries choosing Toronto over major U.S. cities. Secondly, interest and mortgage rates will increase in the short term. Wall Street and Canadian banks want higher interest rates because that allows for higher spreads and more profits. Also, Trump is talking about major infrastructure spending (more than the Mexican Wall) and that could lead to inflation. Finally, expect to see a 70 cent Canadian dollar. What the Federal Government is doing is making it more difficult for residents to buy properties in Toronto while at the same time making our real estate more attractive to non-residents. Go figure!
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
Kings Court Condos: 230 King Street East
This month we are looking at Kings Court Condos at 230 King St. E. Just north of the St. Lawrence market, it has become a very desirable area. This mid-rise building was registered in 2005. The first unit we tracked was one bedroom plus den with locker, no parking and no balcony. It sold just after registration for $240,000 in 2006. It did not sell again until October of this year for $400,000. That is an annual price gain of 5.2%. In today’s market the price is $615 psf. The second sale was a corner two bedroom, two bath unit with den, locker, parking, and a balcony. It first sold in 2008 for $515,000, in 2010 for $549,000, and for a third time in 2016 for $751,000. Over 8 years, that is a price increase of 4.8% per year. At just over 1,000 sf, the price is $747 psf. Even if you adjust for parking and locker, the price is still $700 psf. As we have been predicting, bigger units are now becoming more expensive on a per square foot basis than smaller units – much like Manhattan. That’s because there is a shortage of bigger condo units and more families are having to adjust to the condo lifestyle if they want to live downtown. Currently there is only one small one bedroom unit for sale out of 332 units in the building. The asking price with parking is over $700 psf.
The rental market is no longer seasonal (March to October) but is a twelve month cycle. Recent changes made by the Federal Government to reduce mortgage amounts that first time buyers can qualify for will result in millennials renting for longer periods before they buy or in the worst case, renting forever. This is good news for investors and bad news for tenants.
But to show how short sighted their policies are, consider two single people each making a $100,000 per year. The first is a renter at $1800 per mo. and has $30,000 in credit card debt. His debt to income ratio is 30% and the Government loves him/her as the average in Canada is 162%. Now, consider our second person. They have no credit card debt, and own a $400,000 condo with a $300,000 mortgage (making payments of $1350/mo). The debt to income ratio is 300% and the Government hates these people. But who would you rather be? Obviously the second person with $100,000 in equity!
Now back to the rental market. Multiple offers are the rule, not the exception. Normally rents soften at this time of the year but not in 2016! Studios continue to lease at $1525-$1550 on average. The basic one bedroom unit without parking has an average price of $1775 per month. A one bedroom plus den and parking is now over $2100 per month.
The two bedroom market continues to be strong. The entry point is still $2500 per month and the two bedrooms with den and parking rents for over $3,000 per month. Three bedroom units are in the $4,000 range.
In total over 900 condos were rented downtown in October as opposed to just 700 sales in the same market area.