Condo Prices Stagnate!

Published on 14th November 2017

Recently, two reliable major sources released a condo report that was quite interesting. I thought I would compile the findings and my thoughts here in this week’s insight article for you.

THE URBANATION REPORT

Let’s go through the first one from Urbanation. For those of you who don’t know, Urbanation is a trusted source when it comes to tallying stats and data for the pre-construction market. They have been around for a long time and covers the section that the Toronto Real Estate Board (TREB) doesn’t; TREB does not cover pre-construction condos.

The results are in for Q3! 4577 units sold in Q3, which is a drop off from last year but that was expected. However, in the first 9 months, 26,453 new units were sold and another 12,000 units will be coming into the market by the end of 2017.

We’re on pace to sell approximately 34,000 new units this year, which will be a record high. To give you some context, 27,000 units were sold last year in the new condo sector.

This is what the Toronto Skyline could look like in 2020! Condo City!

If you read between the lines, you’ll see what is actually happening.

Buyer confidence is waning in the pre-construction condo sector and sales activities are down a bit right now. I suspect that this will continue to trend this way for the first part of 2018.

The main reason for this prediction is that the cost to buy pre-construction has increased quite significantly. Like the rental market, there was a huge spike in pre-construction condo prices since Q2. If you bought something in Q2 and Q3, then you’re looking at a 5% increase in price based on the current inventory pricing.

CONGRATS to those of you who bought earlier this year! You’ve likely made some appreciation already.

With some of the major projects launching right now that are not included in the Q3 results, the average cost to buy a pre-construction condo in the 416 by year-end will likely exceed $1,000 per square foot!

It’s currently at $991 per square foot. This type of growth is bonkers! I don’t expect this type of growth to continue; it’s just unsustainable. However, I don’t expect the prices to come down either, if that’s what you’re hoping for.

Everyone has to realize ONE thing with the pre-construction market. This may come as a shocker to you, but the supply and pricing are both controlled by the developer.

It’s not like the resale market whereby if there is too much supply on the market, prices just stagnate a bit. On the other hand, developers can hold their inventory before they put it on the market for the price that they want to charge (more on that next week).

In 2018, we are expecting about 20,000 condo units to be completed, which will be the highest since 2014. Thank goodness – some more supply for the resale and rental markets!

Although it is the highest since 2014, it is only an additional 10% more supply. It won’t fix the supply issue that we’re experiencing, but rather it’ll just be a bit of a pressure relief. I suspect that it will be absorbed quite quickly.

THE TREB REPORT

The second report is the Q3 sales of condos from TREB (i.e., the resale side).

The average selling price of a resale condo is now officially over $500,000, at $510,206. This is up 22% from last year.

Similar to the recent new condo trends, sales are down but prices are up. We’re seeing prices hovering around the same price point in the last few months. This tells that me these prices are sustainable.

Your average resale in the downtown core is selling for 100% of asking price within 3 weeks. It is still a seller’s market despite how much the sales are down.

Below are some charts to show you how the downtown core is doing right now. You’ll notice the affordable sector ($400,000 – $600,000 range) is booming.

The most popular style of units has always been the 1-bedroom and 1-bedroom plus den units. If you go outside of the core, expect prices to be $100,000 lower than downtown prices, but the same popularity of unit layout style preference still applies.

Vacant! Vacancy rates in Toronto are about 1% which is incredibly low. It’s even lower in the downtown core. Rents are up 11.2% for 1-bedroom units and up 7.7% for 2-bedroom units. I expect these rents to keep going up. Good job rent control.

THE WRAP

In Summary, the entire condo market is healthy. I expect sales activity to taper off a bit during year-end and the start of 2018. I also expect prices to stay roughly the same for the next few months and then stagnate for a bit.

If you’re looking to invest in pre-construction, the same concepts that I’ve been preaching about also apply. Buy in a good area that is ideally below market value with projected positive cash flow. If you need a recap of these concepts, make sure you take my online course on “How to Profit from the Toronto Condo Market”. It’s free for a limited time only. You can get it by clicking on the “Sign me up” button down below.

If you’re investing in the resale market, make sure the property cash flows.

If you’re looking to buy for personal reasons, use this price stagnation window to buy something that you like before prices go up again in the future when the demand ramps up again. Also, just be aware of the scramble to buy before January 1st, 2018 due to the new mortgage rules coming into effect.

If you have to sell your property, then make sure you price it correctly.

Until Next Time – Happy Real Estate-ing
Zhen

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