July was the biggest sales month of 2020 but also the biggest sales month ever for a July according to TRREB. This is the Spring market coming late. We also expect August numbers to be strong, with a slow down coming in October. We still believe in a COVID-19 second wave coming late in the Fall. Kids going back to school will be at best, COVID spreaders and colder weather will force everyone indoors. Just look at Melbourne, Australia.
The GTA is also a tale of two markets. The low rise (mainly detached) versus condo apartments. July of 2020 saw a 44% increase in sales of detached homes over July of last year. Compare that to condo apartments, where the increase was just 6%. Going forward, the markets will continue to diverge as shown in Table 1 below.
On the other hand, ‘active’ listings for condo apartments are over two times bigger than current sales. Inventory will get bigger and prices will start to decline in the next 30-60 days!
Even though the condo market is bigger in 416, the 905 area has slightly outperformed it. See Table 2 below.
COMPARISON BY PROPERTY TYPE
Table 1 – source: Toronto Real Estate Board
COMPARISON 416 VS 905 AREA CONDOS
Table 2: The sales-to-new listings ratio is at 47% for the 416 compared to 53% for 905. Active listings are also lower than 416 at less than two times sales in 905. While condo prices have risen faster in 905, we believe this trend will continue as the average price of condos in 416 is still $200-300 psf higher than for 905. source: Toronto Real Estate Board
WHAT’S THE VALUE OF BALCONIES?
One of the primary reasons that low rise has been so popular is that people want a backyard. For people who refuse to abandon their condos, the balcony becomes their oasis during COVID-19. Most analysis of condos focus on the price per square foot of condos. Some developers try to include the balcony. But the balcony does not belong to the condo owner but instead the condo corp. The balcony is a common element with restricted usage. You can only gain access through the condo and hence only the condo owner gets to use it.
But buyers do pay a premium for condos with a balcony or terrace attached. It is extremely difficult to value this difference as you must look at a building with units that have and do not have balconies. We examined sales in 77 Harbour Square on the Waterfront which has both. You need to compare units of the same size and floor level. More challenging, you must get sales at approximately the same time to avoid market differences. We examined sale of one-bedroom units with parking on high floors. We focused on 2019 because we got the most sales.
When we adjust for size, the price difference between the units is $42,000. The balcony in question is 83 sf, which works out to a premium of just under $500 psf. Most balconies in the City are about 40 sf so the premium would be $20,000. My only advice is if you don’t have a balcony, then sell your unit in the winter!!
SALES-TO-NEW LISTINGS RATIO COMPARED TO AVERAGE ANNUAL PRICE PERCENT CHANGE IN HOME PRICE
Table 3: The graph shows that the market is slowly increasing after the pandemic. The average price annual percent change is inclining at a faster rate than the sales-to-new listings ratio. source: Toronto Real Estate Board
The good news for landlords is we did see an uptick in the market for September 1st leases. The Government is now allowing International students to come to Canada. To register for a school like the University of Toronto, even if some or all classes are online, you must reside in the Toronto area.
Our focus has always been on the Downtown rental market which is by far the largest rental pool. The good news is that almost 1200 units were leased. The bad news for landlords is that there are still 6400 units for lease.
Studio units have declined in price from almost $2,000 a month to $1650. The basic one-bedroom unit without parking is now at $2050 per month. The two-bedroom unit without parking is also renting for just under $2600. The three-bedroom unit is at $3900 on average. Rental rates are now 10-15% lower than the start of the year!
This month we looked at two-bedroom units with one versus two bathrooms and found the rent difference to be about $350 per month. Investors need to look at this premium when buying pre-construction.
Our final word to landlords: Get rid of the furniture! There is no market for furnished suites. If you can rent your unit furnished, you will only get the same price as unfurnished!