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Condo Prices Up 17.8% – Big Year Ahead for Condo Market?

Condo Prices Up 17.8% - Big Year Ahead for Condo Market?

The stats are in for February 2016 and condo prices jumped up 17.8% over last year. Is this a trend we can expect to continue or just an anomaly? Andrew la Fleur breaks down some very surprising statistics and what they mean for condo investors in 2016.

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This is Andrew la Fleur, and you’re listening to the True Condos podcast. Well, if you’re a regular listener of the show, you probably can tell that my voice sounds a little bit off today. I apologize for that. Why does my voice sound off? What does this have to do with the Toronto real estate market? Well, I’m going to tell you that answer in just a moment.
Welcome to the True Condos podcast with Andrew la Fleur, the place to get the truth on the Toronto condo market and condo investing in Toronto.
Welcome back. As I mentioned, my voice is a little off today. I apologize for that. The reason for that is because I was at a restaurant last night, having a nice time with some friends and colleagues. The place was so packed with people, the bars, the tables lining up, that I had to yell just to speak to the person next to me for the entire night. Again, it was like I was at a club or something like that, but this was just a regular restaurant, a regular week day night in the city of Toronto.
I don’t know about you, but I’ve found in my experience that when you are in a city, any city, and you go to the restaurants on just a regular week night, it really gives you a sense of the pulse of the local economy and how people are feeling about the economy based on how busy these restaurants are. I’ve just found lately, and I’ve certainly talked to a lot of my friends in the restaurant businesses. They would seem to be on board with this idea that the restaurants are just packed in the city of Toronto. You’ve probably had this experience too if you tried to get a table just about anywhere, any time in the past few months, whether it’s downtown or uptown or east, west. It doesn’t seem to matter. People are just ramming restaurants in this city. I think anecdotally of course, this is not scientific, but I really think that the economy and the way people are feeling about the economy in the city is very, very positive, very, very strong. The people that are out there, they’re spending money; they’re spending a lot of money.
They could stay home. They could have a meal for 5 bucks, but they’re going out, and they’re having dinner and drinks. It’s many multiple times what they might have if they stayed at home. They’re doing this regularly. Families are doing it. Singles are doing it. Couples are doing it. The city is just really doing very well right now. It’s just sort of the general feeling on the street, I feel.
This also is translating into the Toronto real estate market. We’re certainly seeing it there as well, in terms of people feeling good about the economy and the market. The stats are just coming in month after month, and prices keep going up. Sales keep going up. We’re going to talk about some really, really interesting, powerful statistics that have just been released by the Toronto Real Estate Board in just a moment, but just to recap you on where the condo market is and what some of the themes that we’ve been hitting on in this podcast if you haven’t been listening, or if you have …
Again, what we keep talking about and keep hitting home and what continues to be proven to be true month after month, year after year in the past, well, let’s call it the story of the past 12 months or 18 months, the condo market is way stronger than people realize. That’s the theme that we keep hitting on is there’s this perception out there in the general public, perception out there with the skeptics about the condo market or people who just see all the cranes, and they think, “Oh, there’s just too many condos going up.”
The perception is that the market is weak. The perception is the market is over-built. The perception is the market is going to crash. It’s completely the opposite. The condo market is way stronger than people realize. The other thing we are touching on a lot is that the days of Toronto as an affordable city to buy in I believe are almost over. Toronto has had a very nice run as a major world city that you can still afford to buy real estate in. It’s one of the few places in the world where you can live a first-class cultural and economic sort of life and opportunity-wise but yet you can still afford to buy real estate for as low as $200,000 within a stone’s throw of the central financial core. I believe that those days will soon be over.
I believe, as I’ve talked about in previous episodes, that prices of condos in particular are going to jump significantly in the next 2-3 years. We’ve seen it, of course, in the housing prices. Housing prices have gone up so much. I just believe that the last bastion of affordability in this market, which are condos, that is about, as I said, is about to just really shoot up over the next couple of years. Another thing we’re touching on is we’re not building too many condos in this city. Everybody out there who’s listening or people you’re talking to, if they keep telling you, “There’s too many cranes, too many condos,” then you can continue to tell them that that is categorically untrue. It’s simply proven by the fact that prices of condos and rental rates of condos continue to go up.
Remember, this is not rocket science; it’s just basic supply and demand. If the price of something, a commodity, is going up, that means the demand is higher, or the supply is lower. It’s really quite simple. We’re seeing both of things, certainly, in Toronto as prices in rents continue to climb despite the fact that we’re seeing a record number of new condos being completed this year, last year, the year before. The size of the market just continues to grow, and yet, we’re not seeing prices fall. We’re not seeing an over-supply. We’re seeing the opposite.
Again, the connection … Other big theme is the connection between the housing market and the condo market. After several years of rising house prices, prices rising at around 10% on average over the past several years versus condos, condos remaining relatively flat, rising at around 3% on average over the past few years. This has created what I call a value vacuum. That is now this value vacuum in the market where people can no longer afford the holy grail of detached housing or any low-rise housing. It’s just become out of reach for people. There’s this vacuum in the market of value, and people looking for it, and what do you know? The condo market is providing that, of course, as it has all along. It’s starting to really suck stronger and stronger, this vacuum, and pulling in more and more buyers, if you will, into this vacuum.
We’re seeing that. We’re really, really starting to see that. I’ve been talking about it for about 2 years, but we’re really starting to see it statistically now as the prices and the stats, as we’re going to get to in a moment, for condos are really starting to heat up.
Let’s shift gears on that note. Today, where are we in the market? Let’s look at some stats. The February market stats for the retail market are in from the Toronto Real Estate Board. Number one, the shock, the biggest number that really jumps off the page is condo prices, average prices. You know, I’m not a big fan of looking at average prices because that is a very misleading statistic in a lot of cases. Average prices can be manipulated and twisted in so many different ways, but at the same time, it’s the number that everybody wants to hear first. We’ll acknowledge its existence, and we’ll just make note of the fact that condo prices in the city of Toronto specifically, 416, city of Toronto, are up. Condo prices are up February of this year versus February of 2015 by 17.8%. 17.8%. We haven’t seen that number in terms of a price increase in probably at least 4 years. Again, the price increases we’ve been seeing typically for year over year on the monthly basis, typically more around 3, 4% over the past few years. I don’t think we’ve had any even double-digit months. Now we’ve seen 17.8%. A huge jump up.
The number of sales we’re seeing, the number of actual properties, condos that have sold … that number is up 25.6%. 25.6%. Again, we’ve also talked a lot on this show about the rental market and how the rental market has grown so significantly, and the rental transactions are up 20% or so year over year for the past few years. Now we’re seeing the sales going up as well 25%.
The market is growing. We are in a growing city. It was just announced this week. The government of Canada, 300,000 immigrants, a record-breaking number. They’re planning on accepting this year in 2016 into Canada. Where do you think the large, a significant portion of those 300,000 people are going to end up? Well, they’re certainly not going to Alberta this year. I can tell you that. You know, they might look at Vancouver. They might look at Montreal, but if you’re an immigrant coming into this country right now, I think the first place you’re going to look is Toronto. I think a large portion of those 300,000 immigrants, of course, will end up in the city of Toronto, and we have a majorly quickly-growing city. This is what happens when a city is growing. Real estate prices go up. This is why we want to invest in real estate, the hard asset that it is, that’s going to produce great cash flow for us. This is why we’re all here, and this is the reality that’s playing out in front of us.
That’s the first stat. The second stat, which is really interesting … I looked at detached house prices. Again, this value vacuum has been created by the fact that housing prices have gone up so much while condo prices have remind relatively flat, and now we’re going to start to see condo prices really rise significantly over the next couple of years because of that vacuum, because of that gap between the 2 types. Look at detached housing prices in … I went back in time 5 years ago. The average detached house, you know, in the GTA, average detached house was $479,000. The average condo was $302,000 in terms of price. Average detached house, $479,000 versus a condo, $302,000, okay, so that was a factor of, if you look at the condo to the house, that’s a 1.6x factor. 1.6. If you look at those same numbers today, detached house is $909,000, and a condo is $403,000. That is a multiple of 2.3 times.
In 5 years, the gap has gone from 1.6 times to 2.3 times. In terms of real number terms, it went from $170,000 to $500,000. That number has more than tripled in terms of the gap between them. The next stat that really jumped out, I mean, this month, was that sales were up 42% in the month of February for the downtown condo market. 42%. Again, when I study the market, I look at the market as a whole, but really, the primary submarket that I’m looking at is the downtown condo market. That is where most of my investments are and most of my clients’ portfolios are as well, is in the downtown core. That’s where I believe the strongest growth is going to be, ultimately, over the next few years. Sales are up 42% in the month of February over last year. Just incredible.
Listings are actually … Here’s another, again, just really surprising statistic. The number of listings available, condos for sale, downtown are actually down 5.5%. Now that is a real head-scratcher if you’re still in the camp of saying we’re building too many condos or people are telling you that they are. You can simply say to them, “If we’re building too many condos, why are the number of listings actually down year over year by 5%?” I mean, if it’s true that we’re just flooding the market with all these condos that we don’t need, it would seem to follow that listings would continually go up and up and up, and supply would continue to go up and up and up, but we are not seeing that at all. In fact, the number of listings are actually down for the first time, I believe, in a long time. The number of listings has … It’s certainly true the number of listings has been increasing as the supply of new product has been coming onstream the past few years, but for the first time, we’re actually seeing that this has occurred … the number of listings are down.
Really, the next one is the sales-to-listings ratio for downtown, the downtown core. It’s actually 40%. Sales to listings, 40%. A way of thinking of it is, of all the listings available, what percentage of those are sold. Obviously, the higher the percentage, the hotter the market. Last year, February, the number was 26%. This year, it’s 40%. Really, most people would … it’s not a black and white sort of thing, but most people would define a “seller’s market” as being anytime the sales-to-listing ratio is above 40%, and we just hit that mark in the month of February. You could say it’s officially a seller’s market in the downtown core if you own a condo. We’re definitely seeing that here at True Condos. In our resale divisions, we do a lot of resale work with buyers, our investors, selling their properties and obviously just people, clients and users who are buying condos to live in for themselves …
We do do a lot of that work, so if you’re looking for help in that area, we can certainly help you as well. All that to say that we’re seeing bidding wars on our listings. We’re seeing buyers missing out on properties where they’re not acting right away. Stuff is selling very quickly. One case this week, we had a listing that sold in King West, and we subsequent … After it was sold, we had 3 or 4 agents calling us, saying, “I want to bring an offer. My client is so interested,” and we’re just saying, “Sorry, you missed out. It’s too late. The property’s been sold.” I mean, this is the kind of behavior that we have not seen in quite a few years in the downtown market.
It has been more of a buyer’s market. Again, last year, 26% sales-to-listing ratio. That’s a buyer’s market. Now we’re at 40%. We haven’t seen that number in February since 2011. We haven’t seen 40% or higher for sales-to-listing ratio in the downtown market for 5 years. I really believe that the market is starting to shift. The days of cheap condos are just about over. We are going to see significant price appreciation in the next few years, so if you already own condos, now is actually a good time not to sell but rather to sit on those, to sit on those assets for the next few years because I believe you’re going to see very nice price appreciation there versus if I was having this conversation maybe 18 months or 24 months ago you would say, “Well, we’re probably going to see a price appreciation of, you know, 3% or so.”
Now, I don’t think we’re going to see price appreciation like of … The number came out of 17.8% as it was for this past month. We’re not going to see that every month or anything like that, but we will see significantly higher price appreciation, I believe, over the next few years, much higher than 3%. Now’s a good time if you already own condos downtown to hold onto those properties, to ride out some nice years a year ahead of appreciation and continue to rent them out for great cash flow. If you’re looking to buy, basically, the message is the sooner the better because prices will continue to rise. Now is a great time to get into the market. There’s still great opportunities out there, especially in, of course, in the pre-construction market where if you pick your spots, you can get fantastic value. You can even buy below market value in many cases. We’re here to help you and show you how to do that and help you make money, help you prosper, help you build a plan for your future, and just be financially secure for your future, for your children’s future, and for your children’s children’s future. That’s the beauty of real estate, is you can really create generational wealth through investing in real estate. The beauty of condos, of course, is you can do it all pretty much passively, with very little management, very little time and effort required.
Thank you very much for listening to this episode. I hope you enjoyed that. I hope you found some interesting statistics there you can share with your friends, family, co-workers, colleagues, you know, your aunts and uncles who are telling you you’re crazy for investing in condos. Go ahead and share some of these stats with them. Who knows? They’ll probably be calling you for advice very soon and asking you what they should be buying. All right, thank you very much for listening. Until next time, have a great week.
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