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It’s Good to be a Landlord Right Now

[Renters are lining up to pay $2700/month for a view like this.]

Landlords and would-be landlords take note: the sky is not falling and it is not a bad time to be a landlord in this city. I’ve been watching the rental market more closely than ever these past few months and I’ve noticed some very surprising trends. Rents are going up, and going up much faster than anyone in the mainstream media (those who are trumpeting an impending market crash) would like to admit.

Here are two recent case studies that illustrate the current rental market environment:

1. Some clients of mine who are currently living and working in the U.K. but want to move back to Toronto in a year bought a 2 bedroom semi in Cabbagetown for around $600K. Their plan is to keep their foot in the Toronto real estate market and when they move back, renovate and move into the property. When they took possession of the property, they inherited the tenants who were paying $1900/month. The tenants are set to move out next month. They advertised the property for rent and after the first two showings they had two offers to rent from highly qualified and professional tenants. They ended up taking slightly less than they could have in order to get the tenants they wanted. The property will be rented at $2450/month with the tenant paying the gas and hydro bills. That’s an increase of 28% in rent from the previous tenant! The owners are enjoying break even cash flow with just 20% down.
2. New condo buildings are especially interesting. They are commanding rents never imagined just a year ago. For example, at M5V (375 King), you can get a great example of how rents have been creeping up significantly over just the last few months! If you take the example of a 852 sq ft 2 bedroom unit with parking, they were renting out for $2500 in October, $2600 in November, and $2700 in December! An astonishing increase of 8% in less than 3 months. $2700/month works out to $3.16 per square foot. The $3PSF barrier was until recently usually reserved for Yorkville properties and a few other select buildings downtown only. A studio just rented out at M5V for $1500/month and it was only on the market for 2 days! Prime downtown studios were fetching a max of about $1300/month just a year ago.

The point of this post is to illustrate anecdotally that rents are going up and going up fast for downtown properties, especially condos in brand new buildings on high floors. This is food for thought to the crowd that says the prices like $650-$700 per square foot for pre-construction condos are completely unsustainable because they will never carry themselves with 20-25% down. Three or four years from now do you think rents will be higher or lower than they are today?

If you are ready to take the plunge and become a landlord, or if you are a landlord but would like to learn about how you can maximize your returns in the current market, please contact me.

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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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Condo Sales and Prices Up in June

June’s sales figures were just released and wow, what a difference from the last two months! When comparing June 2011 with June 2010, sales are up BIG downtown and prices are up too. Remember that June 2010 was the last month before the HST kicked in, and many buyers and sellers were still scrambling to get in under the wire of July 1, 2010.

My commentary:

• The market is still a seller’s market. There are those who want to tell you that the market has been softening of late, but anyone who is ‘on the ground’ working the market will tell you it is not. 60% sale: list ratio on the east side (C08) is discouraging if you are a buyer.
• Inventory is still a problem. Downtown east had a big drop from last year in terms of units available for sale, just like the month of May showed. Why is no one selling in this town?
• Interesting the the median and average prices in downtown east (C08) and west (C01) are very similar. Is the gap between the east and west narrowing?

With no end in sight to the cheap money (i.e. low interest rates) in this country due to the still anemic U.S. economy and our strong Canadian dollar, I see little chance of a slow down in the market over the next 6 months. Agree? Disagree? I’d love to hear your thoughts. Please contact me or leave a comment.

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Market Snapshot: May 2011

The sales statistics for the month of May are in from the Toronto Real Estate Board for the resale market. As usual, I am only concerned with looking at the downtown condo sales as the stats for a metro area of 5 million people tells us nothing really about the downtown condo market.

My observations for this month’s stats:

• Most interesting to me as always is the inventory level. There were 183 fewer condos available for sale downtown in May versus last year, or about 11% less inventory. Low levels of inventory is a constant problem in this city. Those who keep harping on about ‘they are building too many condos!’…obviously don’t read my blog.
• Prices are up marginally versus last year (both average and median prices)
• Sales:Active ratio is about 38% for downtown total, which statistically indicates a ‘balanced’ market (as usually defined by about 25-40% Sales:Active ratio). This may explain partially why some listings sell with multiple offers while others sit for 3 weeks or more without an offer.

Takeaways:

Buyers - You still need to act quickly and be ready to engage in a bidding war for the best listings. I don’t see this changing much over the next 3 months.

Sellers - If you price your property right and prepare your property for sale correctly, you can still acheive great results, but it’s no longer a market where you can just throw anything out there and expect it to sell for top dollar in a week or less.

Investors - Watch for those properties that have ‘slipped through the cracks’ with DOM (days on market) over 20. These sellers may start to believe their Realtors who tell them ‘the market must be changing!’ and you may be able to get some leeway with sellers.

Questions or comments? Contact me.

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Temperature Check: Bathurst and Lake Shore Edition

This is the second installment in this new series whereby I am attempting to give my readers a street-level, in the trenches sort of perspective of what the condo market is actually like. “Temperature Check” will help show what it’s like to be a seller in the current market and what you can expect if you sell your property now. I’m sharing with my readers some stats that no one else in the market is sharing.

Last week I listed a unit at one of the well-known buildings located at Bathurst and Lake Shore. It was a 1+den with parking and locker on a medium-height floor facing north/north-west. Here is the activity the listing received:

• On the market for 2 days
• Approximately 20 Realtor showings booked
• 2 email inquiries from buyers who saw the listing on the internet
• 1 bully offer received, which started a bidding war with 4 offers total
• End result: Sold for 5% above the asking price

Interpretation:

The results of this were better than I was expecting, buildings in this area typically are not known for their ability to attract bidding wars, and the sheer volume of activity on the listing in just 48 hours was indicative of a very hot market. We were planning on holding off on offers until about a week after the property was on the market, but we received a bully offer after just 2 days on the market so I had to jump into action, calling and emailing every agent who had booked a showing on the property to let them know the situation. 3 other agents responded and also brought offers to the table, which was surprising to some degree but great news for my seller. It needs to be noted that we did not price the property low to attract a bidding war.

My key takeaway from this is that finding a 1 bedroom and den with parking and locker for around $300K downtown these days is very rare, and buyers that have been priced out of ‘downtown proper’ are now looking to areas like Bathurst and Lakeshore, Liberty Village etc. as the next best thing. Of course it goes without saying that a prerequisite for success like this is understanding how to prepare your condo for sale, and to position it properly in all your marketing efforts to generate maximum activity and results.

If you are thinking about selling in 2011, I don’t see things getting any better for sellers than they are right now. Questions or comments? Please contact me.

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Temperature Check: Yonge and Eglinton Edition

Listings are a great way to check the temperature of the market. In a perpetual seller’s market like we have in Toronto, tracking the amount of ‘activity’ on a listing can be a powerful tool to get an overall ‘temperature’ of the market. In a red hot market you will get a lot of activity on a listing in the first 2 weeks. In a cold market, the amount of activity can drop of substantially.

“Temperature Check” is a new feature on the blog where I will share with my readers (most of whom are buyers and investors) what it’s like on the other side of the fence. That is, what it’s like to be a seller in the current market and what you can expect if you sell your property now.

I recently listed and sold a 2 bedroom condo townhouse at a popular complex located near Yonge and Eglinton. Here’s what activity the listing received:

• On the market for 7 days
• Approximately 22 Realtor showings booked
• Approximately 24 visitors to the one-day only open house
• Approximately 8 email inquiries from buyers who saw the listing on the Internet
• 2 offers
• End Result: property sold for 1.4% over the asking price

Interpretation:

I would say that the numbers were in line with what I was expecting for a listing like this in the current market. The property was priced for a quick sale, but not necessarily for a bidding war, therefore I was not surprised that it sold within 1% of asking price. I would say that based on this listing there is still a lot of heat in the market, with very low inventory for buyers to choose from (especially quality inventory). However, I would not say that things are at a boiling point.

Another interesting comment I received from more than one Realtor who had showed the property was that their clients were interested in the property but they were not interested in getting into a bidding war. Buyer fatigue is high this time of year as those who have been shopping since February or March have likely been in multiple bidding wars and are highly reluctant to enter into more.

I hope you enjoy this new blog feature. I plan on including more of these in the future. Questions or comments? Contact me.

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Market Snapshot March 2011

The above chart shows the latest data on downtown Toronto condo sales from the Toronto Real Estate board for March 2011 as it compares to March 2010. C01 is considered ‘downtown west’ and C08 is considered downtown east.

A few observations:

• Downtown west is always the most relevant data to look at when gauging the downtown condo market. The vast majority of sales downtown are in downtown west (C01). Downtown East (C08) is not great to look at on a month-to-month basis as sample sizes are quite small. It is quite common to see very different trends in downtown east versus downtown west (as is the case this month)
• Active listings are up, but so are sales and prices in Downtown west
• On average, prices have gone up about 6.6% since last year at this time in Downtown west
• The downtown west market once again outperforms the overall Toronto Real Estate market (where are you planning on investing this year?). Sales for GTA are DOWN 11%, and prices up 5%
• It’s still basically a seller’s market in both downtown east and west with the sales: listings ratio still hovering around 50%. Anecdotally, the number of ‘quality listings’ remains incredibly thin, while “investor” buildings have plenty of units available for sale.

I hope you find this information useful. Questions or comments on the market? Contact me or leave a comment below.

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2011 Market Forecast From Remax Condos Plus

If December is the annual ‘year in review’ month, then January is ‘predictions’ month. My broker (aka The Big Boss Man) over at Remax Condos Plus, Jamie Johnston, has put out his 2011 forecast for the downtown condo market. Here it is below for your reading enjoyment. Of particular note: Jamie now believes that the pre-construction market is now nearly 100% investor-driven. Love to hear your thoughts on this:

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New Condo Sales Back From The Dead

After nearly a year of massive declines in sales and stagnant or falling prices, it seems that new condos are back. Urbanation’s sales figures for Q2 2009 show a dramatic change from Q1. We aren’t back to the hedy days of 2007-2008, but 2963 units sold sounds a heck of a lot healthier than the paltry 917 sold in Q1. Still, the numbers are 40% below Q2 2008 when 4,962 new condos were sold.

In the past 3 months, I’ve personally been involved with 3 major new condo launches or relaunches: FLY, One Cole, and Liberty Market Lofts. All three saw sales in the hundreds of units in a just a matter of 2 or 3 days. This was the norm back in 2007-2008, where new condos were launching every week and if they weren’t quick to raise their prices after initial launch they would sell out faster than you can say ‘economic collapse’.

Now some developers are starting to do something I wouldn’t have predicted just 3 months ago: raise prices. Check out one of Brad Lamb’s recent ‘tweets‘. And all this is taking place concurrently with the resurgence of the resale market. It seems that the lack of inventory in the resale market and elevating prices have people once again looking at new developments as a viable alternative. More bodies in the new condo sales centres of late has developers thinking less about lowering prices and more about raising them.

The focus now for buyers is ‘where can I get the best price, the best value for my investment long term’. No longer are they swayed by frilly incentives like free maintenance fees or low interest rates. Buyers are returning to the price per square foot equation as the best predictor for long-term ROI.

Still, there are more shoes to drop. More condo projects will be axed or relaunched in the coming months. I expect an active fall for the new condo market and more opportunities for buyers and investors to come.

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Buyers Take a Beating in June

The headlines all proclaim that June was the “best month on record“, but if you were a buyer in the month of June, you’d probably disagree. As usual, let’s take a look at the numbers just for downtown condos.

In C01 (downtown west) let’s compare the June numbers from the past 3 years:

SALES: 2007 – 336 sales | 2008 – 276 sales | 2009 – 400 sales (up 45% from ’08 and up 19% from ’07)

AVG PRICES: 2007 – $315,207 | 2008 – $360,010 | 2009 – $340,895 (down 5% from ’08, up 8% from ’07)

MEDIAN PRICES: 2007 – $281,000 | 2008 – $307,570 | 2009 – $307,500 (flat from ’08, up 9% from ’07)

SALES:ACTIVE LISTING RATIO: 2007 – 71% | 2008 – 44% | 2009 – 70%

In C08 (downtown east) let’s compare the June numbers from the past 3 years:

SALES: 2007 – 123 sales | 2008 – 126 sales | 2009 – 165 sales (up 31% from ’08 and up 34% from ’07)

AVG PRICES: 2007 – $309,449 | 2008 – $322,003 | 2009 – $345,465 (down 7% from ’08, up 12% from ’07)

MEDIAN PRICES: 2007 – $271,000 | 2008 – $303,500 | 2009 – $327,000 (up 8% from ’08, up 21% from ’07)

SALES:ACTIVE LISTING RATIO: 2007 – 90% | 2008 – 57% | 2009 – 88%

Sales are way up over last year and even above where they were in 2007. If you look at the sales:active listing ratios, the numbers are off the charts in favour of seller’s. Supply is just not nearly keeping up with demand.

Median prices for downtown west (where the bulk of condo activity occurs downtown) are basically flat from last year which fits with anecdotal evidence that suggests prices are right back to where they were at the peak of the market.

What does the future hold? I think June will go down as the busiest month of 2009. I think July and August will be very active months, however, heading into the fall market and into the winter I have to believe we have no where to go but down (in terms of number of sales and directional pressure on prices). Things should be improving for buyers soon. Interest rates have gone up substantially of late, and hopefully as some new condo buildings come online over the next few months, we will see a bump in inventory levels.

For additional reading check out “Alarming Inbalance in Toronto’s Real Estate Market“.

Questions? Comments? I’d love to hear from you.

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