Heat Check: Toronto Condo Market Still on Fire in January

Andrew La Fleur: The condo market is still red hot, meanwhile the detached housing market is still struggling. We’ve got the January 2018 stats from the Toronto Real Estate Board. We’ll talk about that on today’s episode.

Speaker 2: Welcome to the True Condo’s Podcast with Andrew La Fleur, the place to get the truth on the Toronto Condo market and condo investing in Toronto.

Andrew La Fleur: Hi, welcome back to the show. Thanks for listening. Really appreciate your support for this show and hey, let me just put in a quick plug; if you enjoy this show, if you like it, I’d really appreciate it if you left me a review.

The latest update on iTunes for your iPhone, has made it quite a bit easier, I found, to actually leave a review for this show or any other podcast that you enjoy. So yeah, if you can go ahead and take 30 seconds out of your day, even right now if you’re listening on your iPhone, and just leave me a review, that would be greatly appreciated. Yeah. I can’t thank you enough, those of you who have left great reviews for this show. Now, on today’s episode, we are at the beginning of February 2018 and we just got the statistics, finally.

TREB finally released the stats for the resale market for January. And so, I wanted to give a few of my quick takes on the stats that I’ve just had a chance to spend some time going through these stats and maybe you’re seeing the headlines and so on. Hopefully, you’re subscribing to this podcast and you’re listening to this episode right on time this week, the first week of February. And this is hot off the presses information to you, but if you’re not listening to it, that’s okay because we’re going to talk about the market and what’s happening and where things are likely heading so if you’re listening to this sometime in the future, you can tell us… tell me (laughs) if we were right or not.

But, a few of my takes from the data, this is the first month of 2018, this is the first month with the new stress-test that is in place where everybody has to qualify for their mortgage at a much higher rate than they’re actually paying. It’s January, it’s cold, it’s Canada, the stock market is crashing as we speak and just generally speaking, you know it’s that time of year where pessimism is generally at an all time high, at least in this part of the world, that’s the pattern that we see year after year.

So how bad are things or how good are things? Let’s take a look. Again, I think my first … The general observation is obviously, and the headlines will generally read and you’ll hear sales are down. Prices for some things are down. So, this is the first time in a while that we’ve sort of had these kind of headlines being thrown at us and it’s going to take some adjustment. If you’ve been listening to the podcast, this is not a surprise for you. You’re aware of this, you knew that this was coming. Again, why are things down? The main reason … Yes, the market is slower than it was maybe before but again, the main reason is that we’re now comparing 2018, we’re now comparing to 2017, the first few months of which were an all time crazy record high. Everything across the board was nuts and bananas.

And you know, 25 offers on every property and prices were going up like five percent a day, it seemed. And everything was just wild and out of control for a brief moment in time there in early 2017, so for the next few months, we’re going to be seeing stats that don’t look as pretty. Things are going to be generally the word “down” … Is going to come up a lot in the headlines. Sales, prices, things like that are going to be … You’re going to see lots of downs as opposed to a lot of ups that we’re used to seeing. So that’s kind of the pretext to the stats here and the stats for the next few months.

But, basically I think that the government policies that came into place in the past few months, particularly the Fair Housing Plan and now the stress-test and the foreign buyer tax and higher interest rates from the central bank … All these policies from the governmental levels are doing exactly what we thought that they would, and that is they’re distorting the market. So these are interferences and interruptions into the free market that have taken place and they’re doing what we’ve predicted, and what we’ve talked a lot about on this podcast and not just me but many other experts predicted they would, and that’s they’re distorting the market.

What I mean by that is all these things are combining together to push the demand down the ladder. So pushing all the demand from the high end of the market to the low end. It’s become harder and harder for people to afford more expensive properties, so that… But people still want to buy, and what I keep telling people is government can do what they want, but they can’t change human nature, they can’t change the fact that people want what they want, they can’t change the fact that particularly here in Canada and in most places in the world, people desire to own their own home.

And there’s always going to be that innate, built-in level of demand for people to buy property regardless of anything else that’s out there. There’s always going to be a certain level of demand, that demand will never go to zero or anything close to it. Unlike the stock market where demand for things in the stock market can in fact go to zero, demand for housing will never ever go to zero.

So, it’s an interesting thing to think about in terms of housing versus other investments but … All that to say that the high end of the market? Not so great, suffering a bit. The low end of the market, doing actually very well. Surging, in fact. Red-hot, in fact. Still pushing forward, very much so. If you’re looking at detached houses, particularly in the 905 areas of the GTA outside of the city 416 Toronto Proper. Prices are coming down still, prices are … In most areas except maybe the more high demand areas there, prices are coming down. But you’re looking at the low end of the market, condos, the most affordable product out there, prices are still being pushed up, and prices are rising at still historically high levels.

So you have this crazy dual market thing going on, which again is caused by these government policies. It’s a distortion in the market, they’ve distorted this sort of demand curve, if you will, and things are wacky where you’ve got some looking to buy a condo under $600,000. Good luck, multiple offers everywhere. You looking to buy a house over $2 million? Take your pick, you’ve got lots of choices out there. It’s a strange and unusual and sort of historic time that we’re in right now.

Just looking at my notes here, the comparisons between last year and this year. Things are starting to look ugly, we talked about that in the intro. My next bullet point here on my notes, this is something that I keep … The theme that I wanna keep coming back to, and hopefully at some point later this year, you’ll remember this conversation and other ones I’ve had lately, like where you say “Huh, Andrew was right again.” (laughs) Hopefully.

Basically, at some point this year I’m saying that the pendulum is going to swing back to low-rise, and away from condos. The hot ticket of the moment are condos, that’s what everybody can afford, that’s where the action is, that’s where price increases are feverish. On the other end of the spectrum, detached housing, particularly in the 905, nobody is looking at at the moment, and is not doing so well. Not so popular.

And so, at some point the pendulum’s gonna swing back. And the demand is gonna swing back to low-rise housing. At some point this year, it’s gonna make a lot of sense to actually invest in low-rise housing, particularly in the 905, I believe. So, watch for that, be aware of that. It’s that old saying, Warren Buffet, investment philosophy. “Be fearful when others are excited, exuberant, and be exuberant when others are fearful.” Basically, do the opposite of what you think, right?

So right now, everybody’s saying “I don’t want to buy a low-rise house in the 905. There’s too many of them out there, prices are coming down still.” But on the other hand, people are saying, “Ah, I’ve got to get my hands on a condo downtown. Prices are rising so quickly, there’s nothing out there to buy.” I don’t think that’s gonna go away, I’m not saying that at all. I’m not saying that condos are going to suddenly start decreasing in price, of course not. I’m just saying that the spotlight, the intense pressure that we’re seeing on the condo market is gonna ease off at some point as people … As prices come up so much on condos. And prices have come down on houses, the gap between those two property types is narrowing, and it’s going back to more historic levels.

At some point, people are gonna wake up and say “Hm, instead of buying this condo at this elevated price from a few months ago I can buy this house at a decreased price from what it was a few months ago.” And that’s just the nature of the housing market. Pendulums swing back and forth between different property types all the time, and we saw that last year, where it was the pendulum swung in favor of condos. The condos after years of three, four, five percent growth, suddenly they shot up and now they’ve been staying up. Price increases have been staying up in double digits for a long time now.

So at some point that’s gonna swing back, and again I obviously sell condos, I specialize in working in the condo market with condo investors. So you may find it unusual that I’m talking about, “Hey, it might be a good investment to buy a house in the 905.” But that is just the reality, that’s truth and I just want to share that with you and help you understand that. As you’re looking at the market, the wider market as a whole … And again, I’m not saying that condos are going to become a bad investment at some point this year, by any means. Condos, I believe, are the best investment vehicle for most people to get into real estate over the long term. And that’s why I invest in them, and that’s why I will continue to invest in them.

But, there are obviously pros and cons to every different type of property. And for some people, they’re waiting and looking for that opportunity when it’s time to get back into low-rise housing. And I just want to make the point, at some point this year, that will probably take place somewhere in maybe the middle or towards the end of this year. Watch for the bottom, so to speak, to be hit for the low-rise housing market, particularly in the 905. And for the activity to once again pick up there, and prices to being rising there again.

But, I think, obviously, what everyone wants to hear most about … If you’re listening to this podcast, is what’s happening in the condo market in particular with the stats, and the downtown condo market, more specifically. So no big surprise, it continues on. Condos are absolutely killing it still. Price increases up, depending on how you’re measuring it, what sub-markets you’re looking at. But generally condo prices are up, in the downtown core around 15 to as much as 20 percent, depending on what you’re measuring, in which pocket you’re measuring. If you’re measuring average prices, medium prices, depending on how you look at it. Prices are up. Prices are up big time. 15 to 20 percent, again, is way above historical norms. If you’re new to condo investing, that is not normal. Reminder, that is not normal.

And, it’s interesting, if you look back … Looking back at the stats from the last … For two years, for the last 24 months. Now we’ve had this … Prices are up about 40 percent. Condo prices downtown are up approximately 40 percent over the last two years. That’s just incredible, we’ve had basically back to back years now of roughly 15, 20 percent growth rate in pricing. And so the average condo two years ago downtown was somewhere in the mid 400s, and the average condo downtown now is in the mid 600s. Which means, if you bought a condo two years ago, you are on average, roughly speaking, up about 40 percent, which is absolutely incredible. That is equal to the previous … Roughly, I wanna say eight … nine years combined. We’ve seen the growth in the last two years, the previous eight, nine years probably was up about 40 percent, and then in the last two years we’ve seen it go up 40 percent.

Absolutely incredible, congrats to all the condo investors out there. But don’t get used to it, as I said, that’s not the normal thing that we would expect to happen for the long-term. What else … Sales to listing ratio, again, the most important stat that I look for every month to get a sense of the temperature of the market and the direction of the market. How hot is the market? What direction’s it going in? Is it a buyer’s market or a seller’s market? Definitely still a strong seller’s market. The sales to listing ratio for downtown is 62 percent. 62 percent. For January, that is incredibly high. That is the second highest January ever. The highest January ever, of course no surprise, was last year. It was about 76 percent last year.

The normal … If you look at taking out the last two years, which have been insane … You look at the previous five years before that. 2012 to 2016, what was the average sales to listing ratio for that five year period? It’s about 23 percent. 23 percent. January is normally a very slow month, it’s sort of a buyer’s market in most January’s, where you’ve got not too many buyers out there. Quite a bit of listings just kind of sitting around. Before the spring market is here, the coldest month of the year, etcetera, etcetera. January is usually a slow month, and the sales to listing is around 23 percent, which is sort of in the approximate definition of what a buyer’s market would be. Anything above, say, 40 percent is generally considered a seller’s market. So at 62 percent, currently, it is a very strong seller’s market. Not as strong as last year, but still far, far and away above what is normally considered for this time of year.

Interesting looking, and that’s for downtown, interesting looking outside the downtown core at condos. Much smaller sample size, so take it with a grain of salt, but the Peel Region as a whole … So Mississauga, Peel Region … 62 percent also, for sales to listing ratio, so a strong seller’s market in Peel region for condos. Looking at the York region, where again, York is probably suffering the most as a region of the entire GTA. York region is Markham, Richmond Hill. North of the city area. 30 percent. 30 percent sales to listing ratio for condos, so much lower than Downtown Core, much lower than Peel District but still above, again, above what is sort of normal for a market for January this time of year. And still not really a buyer’s market per say. Not a seller’s market either, but kind of a balanced market there.

In York Region, again take it with a grain of salt. Small sample size for a condos available in those sub markets, compared to what we’re talking about in the GTA as a whole or the downtown market. But something to start tracking, is more and more condos are coming up outside of the Downtown Core. So, again, looking at inventory now, the biggest driver of this market … What’s gonna happen… Are we gonna see any change in the market? I mean inventory, it’s supply. You know, demand is sort of always going to be there. It has ups and downs, but looking at supply… What has been normal for the… Again taking out the last two years which have been anomalies… So what’s the normal level of inventory for downtown condos over the previous five years, 2012-2016, what’s the normal average number of condos available for sale in January, Downtown Core? It’s typically around 1,200. 1,200 condos are typically available for sale in January over those last five years.

What is available right now for sale? Is it 1,200? No. Is it 1,000? No. It’s down to about 500. We’ve got roughly 500 condos available for sale in the Downtown Core versus the norm of 1,200. So it’s obviously… Inventory is down, I didn’t do the math on that, but that’s a very big number. (laughs) You know it’s a… It’s more than… It’s something like 60 percent inventory is down. 60 percent for normal sort of levels so the sales numbers have come down slightly from what they were last year. Again, even in the Downtown Core, prices are up dramatically but sales have come down slightly. Inventory as amount of units available, is relatively the same as it was last year.

So the sales to listing ratio, as I mentioned, was down to 62 percent from the 76 percent of last year. But, again, there’s very few condos available to purchase. I don’t see how prices are not going to continue to rise significantly unless we see a dramatic increase in the inventory, the number of condos for sale. And I don’t see that happening anytime soon, there would have to be some dramatic shift in the market for that to take place. And again, a lot of the condo market, is in a sense, being propped up by these government policies, which is pushing all the demand down, and pushing all these would be house-buyers into buying condos because that’s what they can afford.

So unless there’s some new government policy, which I wouldn’t put it past them at all, to somehow further stifle demand. I feel like we screwed up demand completely in the low-rise detach market, guys. Let’s see if we can do the same in the condo market. You know I wouldn’t be surprised if they came up with something this year. We’ve had the Fair Housing Plan. I’ve been joking on Twitter that 2018 … I’ve made this prediction that we’ll see the Extremely Fair Housing plan, the EFHP, if you will, come out some time this year. Wouldn’t surprise me at all that there are some new policies that they figure out to further stifle demand as they further look to ways to cool the market and put cold water, essentially, on the condo market as it is so, so hot still.

If they do, again, it’s not gonna surprise us. It’s not gonna cause too much concern. Again, it’s the government interfering in the market. But, it’s like the game wack-a-mole, where you hit … The one thing pops up and you hit it down and the goffer pops up on the other hole over there. So you plug one hole, it comes out the other. The government is gonna continue to perhaps try to interfere in the market, but ultimately, the market’s gonna do what the market’s gonna do. And, as I said, you can’t change human nature, people will continue to want to buy. People continue to have to live somewhere. Immigration continues to be very high. Rental market continues to be very strong. It’s very expensive to rent.

So long term, still, extremely bullish on the Greater Toronto Real Estate Market. We’re on a temporary blip for the low-rise detached market, particularly in the 905. But again, I said, I believe that at some point the pendulum’s gonna to swing back and that market is gonna pick up again. People will adapt to the new stress-test rules. End of the year goes by, people save more money, you know … It always is the same pattern that we see over and over again with … People find a way, and the demand goes where the demand goes and the market will continue to chug along and it will continue to adapt to new rules as they come out.

Okay there you have it, that is my, longer than expected, take on the January 2018 stats, particularly looking at the Downtown condo market. I hope you found this podcast useful. If you did, go ahead and share this with someone that you know who could benefit from it. And once again, if you don’t mind, leaving a review on iTunes takes 30 seconds. You can just do that right now, that would be much appreciated.

If you wanna get a hold of me, you can always call me: 416-371-2333. Or you can send me an email: andrew@truecondos.com.

Until next time, have a great week, and we’ll talk to you soon.

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