Climbing prices, multiple-offer scenarios, and more units coming to the market later in the year.
Staying up-to-date on Toronto’s market conditions gives you a major advantage when it comes to buying, selling, and investing.
Once you understand market fluctuations and historical patterns, you can make educated guesses on how your property will appreciate, how rents impact your sale price, and what buying and selling might look like 5 years from now.
See what’s going on after the slump in the second half of 2017:
Condo Sales Are Continuing To Go Up
After the price correction of mid-2017 in detached housing, condo sales stayed seasonally steady.
Currently, condo sales numbers are at seasonal normal. While activity is slower than mid-2017 and slightly slower than the December rush, it’s at a normal rate for this time of year, especially considering how cold the weather is.
It turns out that faith in the detached market slipped, but condo units are staying steady.
Why? There are a few factors. First, the rental market is tight. Toronto’s vacancy rate (the number of available rental units) is at 1.1%, down from 1.4% in 2016. The number is even lower in the last quarter of 2017, at less than 1% for condo units.
A healthy vacancy rate is somewhere in the 3-7% range. But 1 percent?
It seems incredibly difficult to score a rental apartment right now. Which means that:
- Renters have been buying the cheapest housing they can if they can afford to get into the market.
- Investors are snapping up condo units despite the introduction of Ontario’s Fair Housing Plan.
Investors can currently rent out some condo apartment for more than their carrying costs.
With that kind of return, including having an almost-guaranteed tenant to pay your mortgage, it’s easy to see why investors didn’t shy away from condos.
It might seem like increased condo ownership by investors should also mean an increase in the rental supply, but there is too much demand for now, and it doesn’t seem to be enough to balance out the housing shortage. The city of Toronto is looking at the possibility of introducing vacancy tax as yet another way of tackling the issue, but unfortunately this might not be the solution for the housing shortage in the city either.
The Market Slowdown of 2017 Was Likely All Psychological
Torontonians have been hearing market crash reports since 2013. From worries about overbuilding to rapidly increasing prices, the market seemed poised to drop.
Except it was missing most of the factors needed for a true crash.
Most importantly, Toronto’s population is surging. The density per square kilometre in our city is expected to double over the next 50 years. Which means there’s a desperate need for all kinds of housing – single-family homes, condos, and rentals. This will continue.
Other factors include the Green Belt, which limits building, and the densification act of 2006, which limits detached housing construction and aims to densify certain areas of the city.
Also, foreign investors count for less than 5% of the buyers so any slowdown after the foreign buyer tax rule was more psychological than a real market downturn.
Since the stress test announcement only affects about 10-15% of buyers and only those that wouldn’t be in the market for a detached home anyway, we can assume that the Fair Housing Plan ripple was caused by market opinion and worry, not a trust re-adjustment.
Most buyers have already been taking a prudent approach and not maxing out their budget, but now many who can’t afford detached houses will look into buying condos.
Prices Will Moderately Increase Throughout 2018
If you’ve followed along so far, you know that I think condo prices downtown will go up in 2018.
But by how much?
While 2016 and 2017 marked 18-20% price increases per year for condos, I don’t think the market will grow that fast in 2018.
We’re on track for a sizeable and healthy growth of about 10-15% for downtown.
These numbers might be significantly different from one neighbourhood to another.
Interestingly, sellers who had to sell their homes did so before the new year. Some sellers were worried that the stress test requirements would put their potential buyers out of reach, and so more sellers listed in December than I typically see.
Now there is a shortage of supply in January. Sellers are holding on to their units and not listing, while buyers have come out of the woodwork. In the last couple of weeks, we are regularly seeing multiple offers on condos.
This week, I had my buyers come to an offer presentation night for a unit they were interested in. They were curious to see the process for themselves and I wanted to show them that, despite the reported slowdown, condos are still in hot demand.
There were 14 offers presented for this unit. While several offers were well over asking price and some had no conditions, most of them didn’t even get a chance to improve their offer. It was a frustrating experience for them but now they have a better understanding of how different segments of the market performing independently.
Don’t be too surprised – with the rental market and the need for housing, it’s important to have realistic expectations if you’re looking to buy a resale condo right now.
With cheaper housing a rare find, any condo in the $500k-600k range generates a lot of interest and will continue to sell well this year.
More Condos Are Being Built – And They’re Coming Soon
With the release of new units this spring, and many more projects nearing completion in 2018 (both rentals and condos), we should be heading towards a well-balanced market this summer and that can’t come soon enough.
This is great news for anyone who has been looking to move into the market but doesn’t want to get into bidding wars or look at pre-construction.
Unfortunately, a lot of millennial buyers have been priced out of the market, and investors have taken a lead on condo purchases. Hopefully, with more units on the way and a balanced market, we will see more end-users buying condos in our city.
What Do You Think?
Expecting a slowdown in Toronto’s condos this spring? Think they’ll continue to rise? Let me know in the comments – I’d love to hear what you think!
