Market Commentary April-May 2012
March sales on the Toronto Real Estate Board continued the trend of previous months. Sales were 8% higher than March of 2011, and average prices were up by almost 10% from a year ago. These overall results mask a clear division within the market. Condo sales were unchanged from this month a year ago. Within the 905 Region, condo sales were ahead by 3%, whereas the 416 Region recorded a 2% drop from March of 2011. In terms of downtown condo sales, the results were even worse – sales were lower by 13%! Condo sales for the Etobicoke waterfront, which usually trails the downtown market, were up 10% from the previous March. Sales from the first two weeks of April confirm these trends that first began in February. House sales are outperforming the condo market in terms of sales growth and price appreciation.
So how do we explain the downtown condo market? A lack of overall listings is not the simple answer. In fact Active Listings are up 6% over March of last year. Either the number of end user buyers for condos is levelling off or buyer needs are not matching available listings. Developers better hope it is the latter and that they need to build bigger units. That’s a challenge as the product in the pipeline – preconstruction sales –consists of even smaller condos on average than units in today’s resale market. Buying opportunities exist in the resale market, particularly in bigger units over 1,000 sf. Condo resale prices continue to appreciate but at a much smaller pace – less than 4% on average.
To support this position, we looked at sales at The Element, at 20 Blue Jays Way in the heart of the Entertainment and Business District. Built by Tridel, it has great amenities that appeal to younger buyers. Condo fees are 56 cents/sf/mo. The first unit we tracked was a two bed/two bath unit with balcony and parking. It sold in December for $464,000. The same unit sold previously in June of 2008 for $406,000 and in July of 2007 for $365,000. The one year increase from 2007 to 2008, when the market was peaking was 11%. Note the market correction was 2008/2009. Over the last three and a half years, the increase was only 14%. The unit is 880 sf which translates into a price of $527/sf (including parking). The second unit we looked at was a one bedroom plus den, balcony, and parking. It sold in June of 2011 for $350,000. The same unit also sold in 2008 for $308,000. Over 3 plus years, it has appreciated by 13%. At 655 sf, it currently sells for $534/sf. Both units are on lower floors in this 24 story building, so views are limited. Again compare this building and prices to pre-construction prices in the Entertainment District today and it is hard to justify the premium being placed for future delivery in four years’ time.
Rental activity started to accelerate with units being leased for May and June 1 occupancy. Volumes almost doubled from last month and rental rates were unchanged. Studios averaged $1350. Over 350 one-bedroom units were leased at rates starting at $1500 without parking to $1750 for parking and a den. Two-bedroom units started at $2,000 and went as high as $2550 on average which included parking and a den. This month three, three-bedroom units were leased at an average of $3,000 and all of them were leased within seventeen days. The list to lease ratio is virtually 100% for all units. For investors, there is no problem in leasing your unit. The issue is that rental rates do not support current prices and because of this, we would expect to see a drop in new investors because they cannot cover their interest and operating costs.x`
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