Toronto Market Report – Sales Commentary
Sales on the Toronto Real Estate board for October were better than expected. At 7500 units, it was 6% higher than October of last year, and 16 % higher than September. While October is usually the busiest month of the fall market, we recorded 9700 sales in October of 2016. It will be interesting to see if we will hit 7500 sales in November and 80,000 sales for the year. That number will be the lowest annual sales number since 2008! We would describe the market as ‘treading water’.
On the positive side, listings have also been unchanged from October of last year – both ‘new’ listings for the month and ‘active’ listings in total. The result is that prices continue to creep higher. When you consider that construction costs are also rising, there is little to suggest that there will be any drop in prices. Buyers are now in a predicament. Interest rates and prices (both at modest rates) will continue to edge higher. Sitting on the sidelines is not a good strategy.
In the condo market, sales for October were 5% higher than for October of 2016. Most of the increase came from the 905 area. For downtown condos, sales were actually 4.5% lower than October of 2017. In Humber Bay Shores, condo sales were the same as for October of last year. Rising mortgage rates have impacted first time buyers more than any other segment, and their preferred preference is to live downtown. A partial offset is that more tech jobs are moving downtown and some of these millennials will be buyers. Millennials don’t want to drive or commute to work. Most new renters downtown are in the $100,000 per year income tax bracket! They much prefer to buy, but the Bank of Canada thinks they know best and that renting rather than buying is preferable? Old white men only remember the days when mortgage rates at 10% meant you just paid interest over the first five years. With rates at 3%, over half the mortgage payment goes to principal repayment – a big difference that seems lost on the Bank!
Annual Toronto MLS® Sales
This graph plots the historic annual MLS Sales for the Toronto Real Estate Board. The forecast for overall MLS sales in 2018 is 80,000. Source: Toronto Real Estate Board
Lumiere is located on Bay St., just south of College – a 100 walk score location. This 32 storey Menkes building was completed in 2011 and boasts 9’ ceilings. The first unit we tracked was a one bedroom plus den. It has a balcony but no locker and no parking spot. The unit first sold in 2011 for $422,000; in 2016 for $520,000; and again in 2018 for $668,000. Over the seven-year period, that is an annual increase of 7%. But over the last two years, the appreciation is over 12% per year.
The unit measures just over 600 sf, and that is a price of $1,090/sf. The second condo we looked at was a two-bedroom, two bath unit. It also had no locker and no parking (very unusual but then again you don’t need a car here). It sold from the builder in 2009 for $391,000. It sold again in 2013 for $510,000 and in 2017 for $738,000. The annual increase over that period was 8%. But over the last four years it was 10% per year. This unit is on a lower floor and is just over 800 sf. That translates into a price of over $900/sf. We know that prices over the last year on Bay St. are up about 15% so that would put the current price at over $1,000/sf. Out of 367 units in the building, there is only one available for sale at a price of $759,000 for a one bedroom plus den with parking.
Toronto Market Report – Rental Commentary
In October, there were just over 1,000 downtown condo units leased. That matched the same number as September which is surprising. For the same downtown area, there were just over 500 condo sales in comparison. Usually, rental rates tend to weaken in the fall. But for October, studios or bachelors renting are for $1900 per month – unchanged from September. The entry point for the one-bedroom market (no parking and no den) was just under $2200 which is over $100 higher than last month. This unit type accounted for 30% of all leases in October. The high end of the one-bedroom market with parking and a den is now pushing $2500 per month. That means that the two-bedroom market is also experiencing an increase in rents to $2800 at the basic level up to $3300 at the high end. That’s an increase of $200 per month. At the three-bedroom level, rents remain above the $4,000 per month level. As we have said earlier, millennials should be buying. Instead of renting a one-bedroom plus den and parking for $2500 per month, one could carry a $500,000 mortgage. The good news is that over the five-year fixed term, the borrower would have repaid $69,000 in principal. That is increased equity in their property even if the property never increases by one cent during the five years! On the other hand, a renter would have paid $150,000 with nothing to show for it!!
TREB MLS® Average Price – Yearly Time Series with Trend Line
This chart plots monthly MLS® average price since January 1995. The white line shows the actual average price. The red line is the trend computed using a 12-month moving average, which exhibits no seasonal variations or other irregular fluctuations. A substantial change in actual average price must occur to change the direction of the trend. Source: The Toronto Real Estate Board