Toronto Condo Market Report • November 2021
Sales in downtown Toronto have been slowing since the beginning of the year. October had 9,783 sales which was 8% higher than in September but 7% lower from October of last year. Sales remain well above the long-term average of 8,000 units and will continue to run at higher than normal levels. Looking forward, here are the key factors that will influence 2022 sales and prices:
1) Interest Rates
While higher interest rates will have a negative impact, buyers are already having to qualify at the higher ‘stress test’ level. A lack of product for sale will also slow down sales, but it will not reduce prices.
2) Inflation (which impacts replacement costs)
Inflation also leads to higher prices and when we start to see higher immigration numbers, I expect the market to continue at the 2021 pace.
3) Resale Availability (New Listings)
'New' listings in October were down 34% from a year ago and ‘Active’ listings were down by 55%! There is less than one month’s supply of listings on the market. People who talk about a ‘supply chain’ shortage for durable goods can apply the same logic to real estate.
4) Immigration Numbers.
This is basic supply and demand: More People = greater demand for housing. Same Supply but Greater Demand = Higher Prices. Canada just welcomed a stunning 45,000 new immigrants in September and is on track to achieve its target of 401,000 new immigrants in 2021! Immigration will continue to drive prices up in all major urban centres.
Condo Market
The condo market that lagged the low-rise market for all of 2020 and for the first half of 2021 has now started to outperform the overall market! This is related to the growing price gap between these two property types that I always talk about - the price of houses jumped while condos went down - this price gap needs to narrow and since house prices are not coming down, condo prices have to go UP!
Listing supply again tells the story. The sale-to-new-listings ratio for the overall market was at 83% in October. For the condo market, it shows a sale-to-new-listings ratio of 74%. The 416 market was at 67%, and the downtown condo market was the lowest, at just 59% - all of these markets favour sellers. The low-rise market will continue to be incredibly tight and expect prices to continue to rise but the best opportunities for investors will be in the downtown condo market.
Source: Toronto Regional Real Estate Board
STUDIO CONDOS
Toronto has become famous for the ‘small condo’. I can't tell you how many times I have spoken to family and friends outside of Toronto that say "I don't believe a person could live in 500 square feet!" Well that is now LARGE for a 1 bedroom by today's standards, so why are so many "small" units being built and why are micro condos now appearing?
The explanation is quite simple - the smaller the unit, the cheaper the purchase price! For many people this is simply all they can afford or want to spend. Most developments are now integrating communal spaces that extend your living space into the common areas of the building - you no longer need a massive kitchen because you will Uber Eats 4/5 nights a week and you don't need an office because the building has co-working spaces. Your unit becomes just a place to sleep and this is where the Pied-A-Terre (or Studio unit) enters.
Source: Toronto Regional Real Estate Board
Not only that, many business professionals moved out of the city during the pandemic and are now finding that they have to work back in the office for 3 or 4 days a week. Already I'm seeing some of these people looking to buy the small studios and micro units - the market for these will continue to grow.
RENTAL COMMENTARY
September is usually the end of the peak rental season until spring. In the downtown market, 1,780 units were leased (102 studios, 1,076 one-beds, 573 two-beds 29 three-beds).
Tenants who stayed in the city and negotiated a new lease with their landlords are the big winners. Studios today are almost $200/mth higher than in 2020. Bigger units like two-bedroom plus den are now over $3,100/mth (they used to rent for $2,600-$2,800). Three-bedroom units are now at $4,000+/mth.
Vacancy rates are trending back down with Toronto at 1.7% versus under 1% for the 905 area. The number of condo units in the rental pool sits at 33% in Toronto versus 29% for Mississauga and North York. Looking at the vacancy rate and the small pool of rental condos, the best market today for investors is in the GTA in cities like Oakville and Burlington.
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