MARKET COMMENTARY - CONDO MARKET REPORT
2009 Sales Commentary:
Long-Term Condo Market Outlook Is Positive NUARY/FEBRUARY 2009 - MARKET FORECAST
IN REVIEW
Prior to researching this year's forecast, we reviewed our last two in 2007 and 2008. In 2007, we looked at the long term fundamentals of the condo market and concluded that economic factors would lead to a doubling in condo values in ten years. We still believe that to be the case! For 2008, we continued to be bullish and forecast rising condo prices and sales. And we were wrong. First, we underestimated the impact of the New City Land Transfer Tax. But more importantly the public began to believe all the negative stories about the economy and 'now' is not the time to buy anything including condos. Guess what? People stopped buying and what was once a U.S. Mortgage problem became everyone's problem.
WHAT TO DO IN 2009?
1. Timing the market never works. Sellers did not realize that the market peaked last January (we told you in April) and only woke up to the fact by October. Buyers think the market will now trend down for at least a year. Our guess is that it will be heading back up by summer. For buyers, having the luxury to choose and negotiate over the right property is more important than bidding on a property in a hot market. The first quarter of the year will represent the best buying opportunities. Sellers need to be educated to aggressively price 'at market' from the first day of the listing.. Otherwise they will be following this market down with list price reductions that will net them less in the end.
2. Not all condos have been affected to the same degree by price drops. While some detached housing has experienced decreases of over 15% - condos have fared better. High priced units are off by 10%, most of the market has experienced declines of less than 5% and some units are still rising in price! Don't rely on newspapers for pricing. Now more than ever, you should demand a 'comparative market analysis' from a Realtor before making any Offer.
3. This is probably the best market in a decade for people who want to 'buy up'. Prices at the lower end have held their value. Even if your unit is off by $25,000 from its peak, what you want to upgrade to has probably come down by more than $50,000; meaning that you will need even less of a mortgage than you originally planned.
4. People looking for bargains will find them in the 'Assignment' not the Resale market. An Assignment is the right to own a property before it is registered. Many new condos are ready for occupancy but may not be registered for ownership for up to a year. If these buyers don't move in, they need to sell. There are also buyers who have purchased from plans and are now trying to sell/flip their units even before construction begins.. These buyers will be fortunate to recover their deposits. So if you want to buy at two year old prices, there will be some great Assignment opportunities
5. Finally, a number of new condo projects will be cancelled this year. Not just from a lack of buyers but because the banks will insure that there will not be an oversupply of condos by failing to provide construction financing. Unless you are sure that your project will be built, and that prices are under $500 per sq.ft., then we would give a pass on new construction in 2009.
WHAT TO LOOK FOR IN 2009:
1. Condo sales will be higher in 2009. At the outset, sales will start lower than 2008 but by year end, sales will be 5% higher.
2. Big units will continue to experience modest price declines because 'baby boomers' are frozen into inaction. Prices for units under 800 sq.ft. will continue to appreciate (our guess is 3%) as Generations X and Y exhibit a 'live for today' mentality.
3. The Condo Rental Market will grow significantly. While more investors will be renting out their units, there are also more people wanting to rent condo units and this will keep rental prices relatively stable.
June's results on the Toronto Real Estate Board continued the downward trend in sales and the upward trend in active listings. Sales were down by 18% from the same month last year while new listings increased by 10%. A sure recipe for prices to level off at a minimum! So don't get fooled by average prices being higher than a year ago. The condo market fared slightly better. Downtown condo sales were lower by 12 % but new listings were up by 17%, partly because the condo market is generally more active over the summer.
The HALF YEAR report card is in! Overall sales are down by 15%. Our forecast is that annual sales for 2008 will be 80,000 units (in 2007 it was 93,000). Sales will also be lower than in 2006, 2005, and 2004!! Prices for detached housing peaked in January. Downtown condo sales in total have slowed as well by 11% but active listings are only up 4%. What has happened is that we now have a two-tier market. The condo market under $350,000 is still very strong. Affordability and the fact that young people are not as 'up tight' about the economy, explains the strong buyer interest in this segment, which still can produce multiple offer scenarios. Also there is strong buyer interest from non-residents who still feel that Toronto condo prices are cheap compared with other major world cities. Unfortunately, those Torontonians over forty seem to fear a possible recession which is creating caution at the high end of the market. Market fundamentals suggest that condo prices are not going down! They are just going sideways for the balance of the year!!! While some may preach doom and gloom, the long term outlook for condos remains strong for those who take a longer perspective.
This month, we focused our attention on one of the original and largest loft conversions - the Merchandise Lofts at 155 Dalhousie. To trace the market over the last three years, we tracked the sale of the very same unit, sold in 2006, 2007, and again this year. The unit, one-bedroom with balcony, parking, and locker, occupies 743 sq ft. It was listed for sale in 2006 at $278,000 and sold for $295,000. In 2007, it was listed at $310,000 and sold for $317,250. This year it was listed for $324,000 and sold for $320,000. In three years the unit appreciated by 8% - hardly inflationary! But compared to the stock market, it may not be so bad! While the unit sold over list price twice in the last two years that is more a reflection of sellers trying to create activity by under pricing as opposed to speculation. The price per sq ft at $430 with parking, or $400 without is hardly something to worry about. Buying a new, prebuilt project at $550 per sq ft without parking is something that would cause concern.
Rental Commentary:
We are now in the peak of the rental season Downtown. Activity is up - over 200 one-bedroom units were leased in June. Rental rates across the board are up about $50 per month on average. A one-bedroom with parking is going for $1550 on average. A one plus one with parking is $1650. A parking spot is still averaging about $100 per month. Bachelor units are starting to hit the market - $1200 without parking and $1300 with parking. Over 110 two-bedroom units were leased, the most popular being with parking, no den, at $2200 per month. There were only 30 furnished units leased last month. A furnished unit will cost from $300 extra per month for a one bedroom up to $700+ for big units. Most rental units lease out in 10 -20 days on market. The average rent-to-list price is still 100%.
Regards Bette Ursini 416 608 4704
Maria Ursini 416 608 4100 |
