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Toronto condo market reaches record high for March

Posted by Derek Flack / April 17, 2014

Toronto condo marketCondo sales in Toronto reached a record high for March, with buyers snapping up almost 2,500 new units last month, a figure that more than doubles sales a year ago. This comes, of course, as worry mounts that the local condo market is overdue for a correction -- or worse, a crash. Development continues apace, sparking concern over rising numbers of units that have yet to be sold, but the drop in prices that's been predicted for years has yet to come to fruition.

According to RealNet, the Terminator-sounding research firm behind these numbers, condo prices remained mostly consistent from February to March, with a benchmark price of $436,898. Every real estate expert in the city has a theory on what will or won't lead to a correction, though most agree that there's legitimate concern Toronto's condo supply will outweigh demand. Just how great the gap will be is, however, cause for significant debate.

Some hypothesize that vacancy rates won't reach high enough levels to correct the market. Others predict that overbuilding might be tempered by a greater openness to high density living in a city with a housing market that's daunting to first time buyers looking for a traditional home. For now, the market continues to boom.

Discussion

23 Comments

Deric / April 17, 2014 at 09:12 am
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Crashes happen when there isn't enough demand to support the growth - but as long as new companies, and industries are making the GTA home, there will be demand.
nb / April 17, 2014 at 09:49 am
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Crashes are inevitable, it's the timing that's difficult. It will happen, it's just a matter of when.
sousedbergin / April 17, 2014 at 09:53 am
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Immigration to Ontario is actually down, it is much cheaper to rent, the average home in Toronto is unaffordable to the median household income without even factoring in household debt. The only argument against the bubble bursting is that it hasn't yet which is myopic. Unless there is some kind of rapid rise in wages prices can only move in one direction.
Law replying to a comment from nb / April 17, 2014 at 10:20 am
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That's a very general comment to make, and sheds little insight on the subject.
Anything can/will happen, if you draw it out over a long enough time horizon.

It's also bound to rain sometime in the month of May. it's just a matter of when.


While I don't care to speculate about condo pricing. Housing demand is here to stay, and so are the prices. Interest rate hike, or not, doesn't matter TOO much. Warnings of a crash are smoke and mirrors. Soft landing, yes. Crash, no.
Cashman / April 17, 2014 at 10:23 am
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We had money in our hands to go buy our own condo. Its not the prices or the demand it's specifically what's in stock. The sizes and the layouts are becoming ridiculous now. You give up a rental apartment with bedrooms that aren't connected to the livingroom and has enough counter space for a dishrack and you are paying 3x as much. You buy a 300sq foot place for $475 and then you have to sell it for twice that just to make your money back. It kind of sucks. Now that we have a kid.. buying a tiny condo is out of the question...

If tiny condos are selling for $1millon each. That's great! The economy is booming!!! But will I buy one? Nope...
BrokeRich / April 17, 2014 at 10:25 am
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I admit I want to see a crash. What's happening in the Toronto market just doesn't seem logical to me. But I know you can't argue with the market...it does what it does whether we like it or not. In the mean time, I'm happy to pay $900 a month inclusive to live in downtown Toronto in an old building. The cheapest 1 bedroom condo I can find anywhere in metro Toronto on the MLS carries for about $1700 a month with 5% down including condo fees and property tax. And that's with super low interest rates. If the rates go up, it's going to be messy. Basically I'm living in the same location for 1/2 of that. I don't see real estate as an investment. That's almost $1000 extra per month I'm putting into RRSPs and TFSAs (yes actually...not blowing it on pop and candy like every smug homeowner assumes we renters do). I'll let you know in 20-30 years if it was a smart move or not!
Al replying to a comment from nb / April 17, 2014 at 10:31 am
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Crashes are not inevitable and are, in fact, very rare. Prices are cyclical, but a small downturn in prices is not a crash. It takes a very specific set of circumstances to bring about a crash.
harryg / April 17, 2014 at 10:31 am
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Immigration rates in Ontario have been declining every year for the past decade (new strictly rules, losing out to alberta,etc) fertility rates have also been declining for several decades (way below replacement rates), baby boomers are starting to age rapidly and die off... so please tell me where the demand is going to come from?


prices are going up because everyone has been scared out of the stock market, and don't know what to do with their money. Combine that with low teaser interest rates everyone is borrowing wayyyy more than they should.
Sousedbergin / April 17, 2014 at 10:41 am
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The only thing keeping house prices high is that mortgages under $1 million are insured by the CHMC, we have pre-bailed out the banks on sub-prime lending (95% mortgages with cashback). There are no wages to support this, there is no population to support this. There is no such thing as a "soft" real estate landing.
tommy replying to a comment from harryg / April 17, 2014 at 10:50 am
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Very true about the stock market. We now have a generation of kids that grew up around the 2008 crash and are scared of investing, so the next best thing to do is buy a house and hope for the best.

As for those that argue renting=no equity, they might want to do some calculations on how much of their mortgage is going to the bank, versus buying the property. Condo fees, taxes and repairs all make it a very complex calculation and decision to buy. This is the new reality of living in Toronto, and crash or no, we will have to learn to live with it.
The Shakes replying to a comment from harryg / April 17, 2014 at 10:51 am
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Demand goes up for lots of reasons, besides immigration and reproduction: A) you don't have to be new to the country to be new to Toronto. Much of the increased density in the core came from the surrounding areas B) You get lots of demand when the number of households increase, like when the 30-something that has been living at home finally saves up enough to buy a place. That family goes from one household to two C) you don't have to live here to buy here.
Rick / April 17, 2014 at 11:50 am
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The problem here with these condos now is that they are no longer an investment.... So you pay 400k for a 600sq closet - do you actually think it'll be worth 500K in 2 years, or more?

Condo's are a poisonous investment - it's not like the late 90's and early 2000's where you could buy cheap, and flip 2-5 years later and double (or more) your investment. Those days are loooonnnnggggggg Goooooonnnnneee.
Concu Piscurd replying to a comment from harryg / April 17, 2014 at 12:10 pm
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This is just wrong. Population growth appears to have levelled off in the last 10 yrs but I don't see a marked decline. Our rate of growth appears to be at average or just below when you consider the last 40 yrs. See: http://www.fin.gov.on.ca/en/economy/demographics/projections/

Francine replying to a comment from nb / April 17, 2014 at 12:28 pm
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Could you speak up, nb? You are a bit hoarse. The sky is falling, you say? Bur falling very slowly?
Vic / April 17, 2014 at 01:17 pm
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You especially can't say that there is a booming demand when estimates state around 50% of condo purchases are by investors (foreign and domestic) who then rent out the units. For them the investment is worth it, by raising rent to a profit the cover any forseable loss, but a regular buyer doesn't have this luxury.

A way for Toronto to improve the condo market for buyers who actually reinvest in the area, would be to implement legislation which puts a cap on condo fees. Who wants to be paying ridiculous condo fees and paying down a mortgage, as their investment depreciates? Does it cost $500/month from 300 units to vacuum the hallways, pay security, and keep gardens blooming for 4 months a year? No effing way.
Robert / April 17, 2014 at 01:25 pm
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There is not a city anywhere with an economy as vibrant as Toronto were you would use the word affordable, why would Toronto be any different? Cities like London, Paris and New York all have small spaces for large sums of money. Been that way in European cities for centuries. You want cheaper, and bigger you need to move further away from the city. That is not going to change.

You are not likely to see much of downturn in the housing market in Toronto. It will continue to boom. The job market is very different them when boomers were young. No longer do you get a job and spend decades there building a career with on the job training working towards retirement. You come in job ready and build a career going from job to job. To do that you need to live were the jobs are. One day you're here the next you're there you need the ability to make snap decisions. Businesses know this and are moving to were the greatest pool of employees are. In the next year over 5 million sq feet of office space will come online, and millions more in the next few years. Toronto will have 3 million people by the end of this decade.
Rick replying to a comment from Vic / April 17, 2014 at 01:31 pm
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Agree - the problem are these "property management" firms that condo corporations hire to manage everything - Their M.O. is to charge and charge and charge up the a$$ so that they can sit around on their duff, get fat and do absoultely nothing.

Property Management firms are an absolute joke.
harryg replying to a comment from Concu Piscurd / April 17, 2014 at 02:16 pm
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"Net migration levels to Ontario have been lower in recent years, at less than 100,000 per year, mostly due to net interprovincial migration flows to the rest of Canada. Natural increase has also been trending lower, since baby boomers have nearly completed their reproductive years and the cohorts of women in peak fertility years are now smaller. The number of births and deaths has been rising slowly and at a similar pace. As a result, natural increase has been fairly stable at about 50,000 annually over the last decade."


At 2.1 people per household, that's a need for about 25,000 units a year


We are building approx 60,000+ new housing units a year.

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/manuf05-eng.htm
CW replying to a comment from harryg / April 17, 2014 at 03:24 pm
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At first you say:

> Immigration rates in Ontario have been declining every year for the past decade

And then you quote:

> "Net migration levels to Ontario have been lower in recent years, at less than 100,000 per year..."

Which is it? Up or Down? It doesn't really matter though because population and migration rates of Ontario aren't the only factors in Toronto's real estate.
CW replying to a comment from Vic / April 17, 2014 at 03:38 pm
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> Does it cost $500/month from 300 units to vacuum the hallways, pay security, and keep gardens blooming for 4 months a year? No effing way.

Is that what your board reports in their yearly financial statements to you? Is that verified by an auditor? And still you voted for these people to remain on the board and hire people to do such a job at that rate?

It's likely that you haven't looked over the financial statements properly or haven't looked at the reserve fund plan and what the obligations are for the reserve fund.
AF / April 17, 2014 at 05:36 pm
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I don't get how these things are deemed great investments-other than perhaps expectations for sizable capital gains. The average cost in Toronto is $543/sq.ft - $500-$700/sq.ft is larger range. If they rent anywhere from $2-$3/sq.ft, you have on the conservative end -$0.50/sq.ft of monthly maintenance fees (I have seen $0.57-$0.64/sq. ft) and say 1% of property value as property taxes (on the average size of 700 sq. ft, this is in the $0.40/sq. ft. range. So gross rental income of $2-$3/sq.ft less maintenance and property taxes - $0.50 & $0.40 respectively gives you a net number equal to $1.10-$2.10/sq.ft. This works out to an annual yield around 2.4%-4.6% range ....which I think is very much on higher end. You can find a REIT that is the same asset class (real estate) that pays an 8.5% yield (HOT-UN:CN) that is far more liquid than a condo here: http://www.bloomberg.com/quote/HOT-U:CN. I can find easily a handful of REITs that pay north of 4%.

lol / April 17, 2014 at 07:21 pm
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Anyone that thinks that the bubble is gonna burst and prices will forever go down is crazy. Simple. People want to live in the LARGEST & MOST IMPORTANT CITY IN THE COUNTRY. Although we are not surrounded by water, we are surrounded by a terrible transit system which has a similar effect. People simply want to live in Toronto Proper. Has transit improves, density will increase around Toronto's Inner Suburbs as well such as Eglington. So you tell me.... where are these people going to live?

The Greater Toronto Area (GTA) is projected to be the fastest growing region of the province, with its population increasing by 2.5 million, or 39.1 per cent, to reach over 8.9 million by 2036. - The Province of Ontario
BillyO / April 18, 2014 at 04:54 pm
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I agree with the above. There cannot be a huge crash or even 'soft landing'...the market will sort itself out. Instead of continual price increases however, I do think we will see a stagnant price period for at least a few years with regards to condos in 2015-2018 as somany units hit the market and are completed. Homes on the other hand, will continue to either rise, or you'll see what is happening with condos: develops buying blokes and increasing density with townhomes, albeit less sq ft for the the same as detached at pre 2015 prices.

And as noted above, the GTA will have a larger share of the overall population of Canada, not less, over the next two decades. After that it's anyone's guess.

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