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Toronto Condo Bubble About to Burst?

There seems to be a growing segment of the population and the media that feel that the condo market is about to see declining prices. I am getting more and more comments like, “I heard that prices are going to come down this year, so I’m going to wait until that happens then buy”. Based on this, I thought it was time for an update on the ever popular question of “How is the condo market doing?”.

I would like to specifically break down this quote from Benjamin Tal, Deputy Chief Economist for CIBC and resident MSM go-to guy for quotes on the real estate market in Canada. Tal is quoted as saying, “Prices are already softening, housing starts aren’t in the sky, MLS [multiple listing service] activity is starting to soften, so it suggests the market is already starting to level off”.

1. Prices are already softening. Really? Where exactly is this occurring? All I see are prices going up in the resale and pre-construction segments. There are far more buyers than sellers and average DOM (days on market) is still less than 30. Definite sellers market territory.
2. Housing starts aren’t in the sky. I’ve never understood why anyone bothers to look at housing starts as an indicator, other than on a year over year macro level. Housing starts go up and down with great volatility every month. Two new condo developments start selling today, one might break ground in 9 months, another in 19 months. One might take 18 months to build, another might be 26 months. Starting and selling and completing are three very different things. If someone can enlighten me on this metric I’d be much obliged.
3. MLS activity is starting to soften. I’m looking for a resale buyer who thinks this is true. Please contact me immediately if you feel that you have more than enough choices of quality, well priced listings fitting your search criteria! All I see when I’m on the ground every day with buyers is a shortage of listings and anything that hits the market with any sort of quality will sell over asking in multiple offers.

I would love to take Tal along with me as I search for properties (both condos and freeholds, pre-construction and resale, investors and end-users) for my buyer clients. I’m quite sure that after a day or two his opinion on the Toronto real estate market would change dramatically.

Please don’t get me wrong though-a slow down in our market would probably be a good thing after the run we’ve been on since March 2008. It would breathe some much needed life into the entire industry, however, I just don’t see it happening any time soon unless there is some dramatic shift in the market. I still stand by my comments I made in July 2011 on the market. Unless there is a rapid change in interest rates and/or a major economic catastrophe, the Toronto real estate market and the condo market in particular will continue on its current path which is presently appreciating at about 8% per year.

Those are my thoughts. What about you? Contact me or leave a comment.

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Wall Street Journal Chimes in on the Toronto Condo Market

I guess this makes it official: everyone is talking about the Toronto condo market. I was interviewed a couple weeks ago for an article on our condo market by a writer for the Wall Street Journal, and today that article hit wsj.com. Read the entire article here. See what people on Twitter are saying about the article here.

The article certainly has a bearish slant to it, with the basic thesis being: the market has been booming for so long it therefore must crash. Certainly not something we haven’t heard before many times over the last decade, but should this article give individual investors pause as to whether or not they should be buying a condo in Toronto right now?

I was asked my opinion on the market and the prospects for a ‘correction’. What I told the writer was the same thing I’ve been saying on this blog for a while now: the likelihood for a correction in the short term is very low, the fundamentals right now are strong. However, even the most bullish investor must admit that a key driver to this market has been the lower-than-low interest rates we have had over the last few years. If rates continue to stay low, demand will continue to be strong, prices will continue to rise, and thus, the potential for a correction will grow. In other words, no market can rise at 6-8% per year ad infinitum, but as long as money is cheap, the market will likely keep its momentum.

I would love to hear your comments. Leave one below or email me.

Graphic above taken from the wsj.com article.

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Will the Condo Market Crash?

It’s that time of year again, the time of year after a very busy spring market (I would argue a typical spring market) that was full of bidding wars, new price records being set, sellers making enormous profits, buyers extending themselves to the max, and the pundits were left scratching their heads saying: is this a bubble? Is the condo market about to crash? Cue the headlines proclaiming that prices will soon fall. It seems every year around mid-July when all the final stats are in for the busiest time of year for real estate (April, May, June), the mass media looks to tell us that this is not sustainable and that it is all about to fall apart.

The Globe and Mail and the Toronto Star are competing for your eyeballs right now running the same story: some of the good folks at TD bank are claiming that sometime in the next 2 years the market will slow down and prices will fall. Wow, what a bold prediction (sarcasm)!

Here are my problems with this prediction (and others like it):

1. They are extremely vague. Interest rates will go up and incomes will go down, therefore prices in Toronto and Vancouver will fall 10%. Really? How will this happen? Why will this happen? Show me some statistics in the market right now that leads you to believe this is going to happen. These articles are always very short on specifics.
2. They are too broad in scope. Economists and bankers are trained to think of the big picture. We live in a global village, however, real estate is still local. If you want to know what will happen to the downtown Toronto condo market – talk to the experts who live and breathe the market, not some economist who has never set foot inside a Toronto condo.
3. They are too long term. Trying to predict the real estate market beyond about 6 months is a fool’s game. Look at any of the predictions made 2 years ago for where the market would be today and you’ll see what I mean.
4. They are media driven. Bad news sells. Good news doesn’t. This is a simple concept we all understand. If a pundit comes out and says that everything seems fine and will continue along as it has been, that pundit will soon be out of work!

I only see two things causing a change in the Toronto condo market in the short term:

1. RAPID rise in interest rates. If interest rates rise, this won’t likely impact the market – because they will rise slowly and the market will adjust accordingly. If they rise quickly and significantly, then we will see a big impact. (Consult further: Toronto condo market in 1989.)
2. MAJOR economic catastrophe. If Greece defaults, or the U.S. doesn’t get their act together and they are downgraded, the world will feel the pain and the trickle down effect will most likely and eventually hurt the Toronto condo market.

Thoughts or questions? I always like to hear from my readers. Leave a comment or contact me directly.

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Is Toronto Different?

Are we different? This recent piece from MSNBC on the differences between the U.S. and Canadian housing markets once again hits on the big question of why did we not experience the housing market crash that the rest of the world (especially the U.S.) did. Are we fundamentally different and insulated from the U.S. housing market? Even more important – moving forward is the Toronto Condo Market at risk of collapse?

Doomsayers like Garth Turner would say that we are exactly the same as the U.S. in that we have lax lending requirements and our own versions of sub prime lenders, and that we are living way beyond our means. Of course, Garth has been saying this for about 3 years now, and written two books about it, and still we are awaiting the big crash that he says is imminent.

Most bankers and economists would tell you that Canada is different because we are more conservative or something like that.

Both sides of the argument to me sound like a whole lot of cliché and not much analysis of the numbers or reasoning behind their statements. Predicting the real estate market beyond the next quarter or so is always a fools’ game. Look at every long-term prediction that has been made by bankers, Realtor associations (like TREB or CREA), economists, and pundits over the past 5 years. One thing they all have in common is that they were all wrong! The best these so called ‘experts’ can do it seems, is tell you that things will be slightly different next year than they were this year.

There is no debate now that the Toronto condo market is losing steam. Listings are up, sales are slowing, prices are weakening. The inevitable questions are now are will it crash? How long will this ‘down market’ last? Isn’t it our inalienable right as Torontonians to always have an upward moving condo market?? But the biggest question is, where do I put my money as an investor? There are good opportunities in every market, including down markets, in which to invest. I’m investing now, and you should too. Contact me if you’d like to discuss.

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1 Bloor Rumour Train Gathering Speed

July 22 Update: The 1 Bloor site at Yonge and Bloor is apparently up for sale according to the Toronto Star. If this is true, this would put the future of the tower in serious jeopardy.

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1 Bloor was the most celebrated and most reviled symbol of Toronto’s recent real estate boom.

Realtors lined up for weeks (or paid students and homeless people to do so) for the chance to buy units there only to learn that the developer increased prices by 25-50%  from what they were told they would be paying. It didn’t matter as they bought anyway and hundreds of units were sold in a matter of days at prices in the $1000 per square foot range.

Now, more than 2 years after the initial hype began, no shovel has hit the ground and no one is moving into their piece of Toronto real estate history any time soon. Still the million-dollar question remains:

Will 1 Bloor actually get built?

The latest rumours news on the project is this: it will be built, only it is going to be scaled back to 68 stories instead of the original 80. This is according to the Globe and Mail. So that would mean it is no longer Canada’s tallest residential building, and purchasers who bought units on floors above 68 are…screwed.

But hold on, because The Toronto Star has a remarkably different article in their paper today which says that 1 Bloor is going into receivership and that the current Kazakh financial backers of the project are in mired in a massive scandal. That doesn’t sound like the recipe for building a 68 storey tower to me.

So who is right? I have no idea, but this corner of Toronto deserves a landmark, be it 1 Bloor or something else. My fear is that if plans for 1 Bloor are scrapped, something mediocre will be built in its place. When it comes to condos, Toronto already has plenty of mediocrity but greatness is in short supply.

For a trip down memory lane, check out some of my old blog posts on the 1 Bloor development from when I was a contributor to BlogTO.

• Kazakhstani Developer to Transform Yonge and Bloor: Very Niiice!
• 1 Bloor: What will you miss the most?
• 1 Bloor: Crosshairs of Insanity

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You Should Have Bought 2 Months Ago

The Toronto condo market is hot right now. No seriously, it is.

After months of writing to my readers about how slow the market has been, there has been a fundamental shift in the marketplace over the past 4 weeks. Multiple offers are back with a vengeance. The best properties are selling over asking and in less than 1 week. Buyers are feeling the pinch and I am starting to get used to the phrase ‘sorry, that property is sold’ when I go to book appointments for my buyer-clients.

The stats for April should be released by the Toronto Real Estate Board any day now, and they will almost certainly reveal that sales are up and prices are up beyond what anyone was anticipating for this month.

Why? What happened? Has Barrack Obama worked some kind of magical spell over our economy? Are things not nearly as bad as everyone thinks they are? Are we all just living in denial and making things worse on ourselves by buying up all this real estate?

My thoughts on what has caused this recent upswing in the market:

1. Affordability. Prices have come down about 10% overall since the peak about a year ago. Interest rates have been basically cut in half since about 18 months ago. 
2. Spring Fever. Every year at this time the market is at its hottest. This is always the busy season, so in that sense this upswing shouldn’t surprise us.
3. Changing Attitudes. Sellers are more realistic on their asking prices, and buyers are more aggressive as many have been waiting to buy for 6 months or more.
4. Canadian Pride. People are starting to see and believe that maybe it’s true – things here in Canada are not nearly as bad as they are in the rest of the world. Where is the best place for your money to be long-term? Many are thinking once again the answer is real estate.
5. The Investor Equation. For the past couple years, it was very difficult to find a cash-flow positive condo in Toronto with 25% down. Now, due to lowered interest rates and lowered prices, with rents staying pretty flat, it is.

All this is leading many people to wonder if the bottom of the market was back in January or February. Certainly there were some great bargains had during those months compared to what we are seeing today.

What are your thoughts? Contact me or leave a comment.

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Cresford Does The Right Thing With MYC

Feb 2010 update: MYC is back! Relaunch coming soon. Contact me for new pricing and new floor plans. Starting from the high $200s.

Cresford is making a very bold move with MYC. They are lowering their prices on all suites-significantly. As in up to $90,000 per unit.

MYC launched with much fanfare, but with terrible timing. They started sales literally the very week that the stock market began to plummet and it was bad economic news followed by worse economic news every day that week back in October ’08.

I was there at the broker’s luncheon event where they announced the broker’s sales event which was to happen a couple weeks later. The luncheon was absolutely packed. Something like 250 brokers and agents were there and it certainly seemed like the project was going to be a massive success and would likely sell out very quickly.

The broker’s sales event took place as scheduled a couple weeks later, and to everyone’s surprise, only a handful of units were sold that night and there were more valet parking attendants than buyers (seriously)!

Prices started at about $500 per square foot and as you reached the higher floors on the south side you were easily paying $600+ per square foot. Resale units on Merton were going in the $400-$500 PSF range and many buyers were baffled at the prices they were seeing at MYC. Most buyers I talked to loved the project and the location especially, but they just could not swallow the prices.

Fast forward to today and the project is only about 35% sold, not even close to the number they need to get the project done relatively on schedule. So Cresford announces they are lowering prices of all suites to the tune of $60-$100 per square foot.

And in a somewhat unprecedented move for a Toronto developer, Cresford has said that they will credit all previous purchasers an amount equivalent to the reduction in price! A savvy PR move that will surely win them some favour with their clients, the broker community, and the public.

So why is Cresford doing this? My thoughts:

• Their construction costs are significantly lower than first budgeted. I was told something like 12% lower.
• They believe strongly in the project and want to get it built. The location is amazing and the architecture is beautiful.
• They understand that they can always raise prices again in the future once they hit their threshold to start construction.

More details to come. Once I have a revised price list, I will try to post it here. For more info, contact me.

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Signs of Life? February Condo Market Stats Have a Pulse

It’s that time of the month again, TREB just released their stats for February. The numbers aren’t as painful to look at as in the previous few months, but does this mean we are on the way to recovery?

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New Condo Sales Still Down; Prices Still Up

[**CHART REMOVED DUE TO COPYRIGHT CLAIM BY REALNET CANADA INC.**]

Realnet has released the sales figures for new condos for the month of January. Prices are still increasing despite the fact that the number of sales continues to be significantly lower than a year ago.

Prices are up 8% for high rise condos while sales were down 64% compared to January 2008. 

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2009 Begins As a Buyer’s Market

TREB has their January stats up for resale properties. Looking at the numbers for downtown condos it is now very clear: we are in a serious buyer’s market. 

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