Renting sucks… unless you’re a landlord
Explosive First Half for GTA New Condo Market
A total of 12,138 new condo apartments were sold across the Greater Toronto Area in Q2-2017, setting a second consecutive quarterly record and rising 62% year-over-year. The 21,968 units sold during the first six months of 2017 surpassed 12-month levels averaged over the past 10 years (19,997 units).
Today is Tuesday, August the 8th, and this is what’s happening in the condo market this week. Thanks for checking in with this video. Once again, Andrew la Fleur from truecondos.com, and we have a few articles for you this week.
The first article is from the Toronto Star, and the headline is, Average Toronto Home Price Drops $173,000 Since April. The number of sales in July also fell 40.4% compared to June, last year. So, getting more and more of these headlines coming out. The numbers for July were released last week from TREB, and the big number that’s going around is sale. A lot of media and people in the Twittersphere, and other places are commenting on the fact that prices have come down $173,000 since April to July. So, obviously on paper that sounds like a horrible thing. That sounds like the sky is falling. It sounds like there’s a dramatic crash in the market. But what you don’t see in the headlines, and if you don’t read these articles in more detail and look at the stats that are behind them, if you’re not a thorough investor and a thorough analyst on these things, then you’re going to miss the fact that this happens every year.
So, every year the seasonality to real estate. The story behind the story here, what I want to communicate to you the real estate investor, is understand the seasonality of real estate, and understand how to read statistics. Every year the market peaks in the Spring, and the market goes down until the Fall, and it goes up again. It goes up and down. It’s not like real estate prices go up every single month of the year, every year. It doesn’t happen like that. The real estate market peaks every Spring, and the prices tend to go down. This is a normal thing that we see every single year.
Now, of course, the extent that the prices have come down this year, is more dramatic, but why is that? Well, because the extent to which the prices went up, a few months before were more dramatic. So again, what we’ve been talking about on these videos, and on the podcasts for many months now is, and what I’ve been telling all my investor clients and everybody watching these videos, is don’t get used to these price increases. This is not normal. It’s not sustainable, and that’s exactly what we’ve seen.
Gravity is starting to take hold in the market, and the prices soared and prices went up so quickly, and now prices are naturally coming down at a faster rate than they would in other years as well. They’ve gone up at a faster rate. They’ve come down at a faster rate. This is what we expected. This is what we anticipated, and this is why we advised our clients to keep this in mind and to understand, as they’re making investment decisions in 2017, that this is a pattern that we’re seeing in the market that is happening, and it’s not likely going to continue at 30% price increases.
Anybody who took our advice, has done very well. Anybody who bought, thinking that prices were going to continue to go up at 30% a year, obviously are very much regretting that decision, if they purchased in the past few months with that sort of thinking in mind. So, that is the first article I want to talk about, and understanding the seasonality of real estate, is my main point to bring home there. Obviously, there are concerning signs in the low rise market, but just the fact alone that prices have come down since April, that alone is not something to be concerned about. That happens every year.
The next article is talking about the new condo and new home sales. The stats are out for Urbanation from the second quarter, and the numbers are very, very good. In contrast to the low-rise resale market, especially the condo sector, pre-construction condos have been doing extremely well, historically well, better than ever. New condo sales in the quarter were up about 89% from the same quarter of last year. So, they almost have doubled from what they were last year, which is a tremendous result, and it speaks to the tremendous strength in the condo sector, compared to the low-rise housing sector.
Number of reasons for this. One is just the affordability. Condos are very much affordable, in comparison to the low-rise housing sector. Low-rise house prices have shot up in double digits for many years in a row, and therefore, condo prices in comparison rising at low single digits, now appear to be very, very affordable. So, more people are buying condos, because that’s what you can afford. The other thing is that, even though the market has been incredibly hot in the condo sector, and almost twice as many condos sold this year, versus last year. The actual prices of sold condos, if you bought a condo in the second quarter of this year, you on average, paid only about 10% more than somebody who bought a new condo in the second quarter, up 2016.
So, 10% increase in sold condo prices, as per Urbanation, compared to again, the 30% or so increase in resale house prices, and even resale condo prices, compared to last year. So again, there’s still, surprising to many people perhaps and you listening, is there’s still affordability and there’s still great sustainable price increases we’re seeing in the pre-construction side, of the condo business, which is a very good and healthy thing to see in the market. We’re not seeing these 30 prices going up by 30% in the same way that we saw in the low-rise housing market.
Again, it all speaks to affordability, and people buy what they can afford. People invest in what they can afford as well, and what makes sense. Buying a low rise house at two million dollars, that’s going to rent out for $4,000 – $5,000 a month, it just doesn’t make sense. Buying a condo for $500,000 that’s going to rent out for $2,000 – $2,500 a month, makes a lot more sense. So, you have the condo results there. Again, links to all these are going to be in the show notes for the video, and the link below.
Finally, wanted to bring up this article from Bloomberg. It’s been making the rounds. The title is, Renting in Toronto is a Total Nightmare. Renting in Toronto is a Total Nightmare. With rents at all time highs, would be tenants woo landlords with Tinder-style bios. So, talking about how tenants are going to extremes to secure rental places in Toronto, especially condos. Rental rates are at an all time high. Again, great news for condo investors. Something we’ve known for a long time. Condo rentals are still appreciating at around 10% per year, which is about four to five times the normal, sort of typical, rental increases that we’ve seen in the past few years for condos. The province’s new rent control measures, lack of supply, the prices of houses, the prices of condos. All these things are contributing to a great, great, great rental market, if you are a landlord.
It’s a terrible rental market, is the point of the article, if you area renter. It’s very hard to find a place. Another point to touch on here is seasonality as well. There’s seasonality to rentals as well. The rental market peaks right around now. July, August every year is when the rental market peaks. The most number of places are rented. It coincides with the September 1st school year for university and college students. It coincides with weather, and people just wanting to move in Summer. Kids in school. All these things. It’s always the same every year.
So, you’re always going to see these types of headlines, in these types of articles talking about how it’s tough to be a renter. How Toronto is a very competitive city. These articles are going to peak at this time of year as well, and then conversely in January, February, that sort of time of year, in the dead of winter, you’re going to see articles saying, “You know, the rental market is soft. You can find a place. There’s lots available.” This is again, the normal seasonality that we see in real estate, but still speaks to the fact that overall, it’s a great time to be a landlord.
It’s a great time to invest especially in condos, and if you are lucky enough to take possession of a new condo this Summer, and you’re looking to rent it out, especially downtown, you’re going to do very, very well with that. So, congrats to you, and may all your condos come to their occupancy in the Summer months, as opposed to the winter months. Of course, it’s out of our control as condo investors, but it’s always great when that happens.
Okay, there you have it. That’s the articles I wanted to point out to you for this week. Hope you enjoy this video. If you did, go ahead and share this with somebody that you know. Hit the like button. Hit the share button. Drop me a comment. Send me an email. I’d love to hear from you, and until next week, happy investing.