Lessons for Toronto from the Vancouver Real Estate Market

Speaker 1: 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.

Andrew: Okay, it’s my pleasure to welcome back to the show returning guests, Matt and Adam Scalena. Matt and Adam are real estate agents in Vancouver and they’re hosts of the very popular Vancouver real estate podcast. Guys, welcome back to the show.

Matt: Hey, thanks for having us, Andrew.

Adam: Yeah, thanks, Andrew. Appreciate it.

Andrew: Yeah, great to connect with you guys again and looking back, it looks like we last spoke in February and I think at that time, the Vancouver market was perhaps at its lowest point at least in the headlines. It was down for the count and everyone was sure that it was dead, but now a few months later its obviously a very different story so wanted to get a market update on what’s happening in Vancouver and a lot of the headlines and stuff that we see here in Toronto about real estate in Canada, it’s always Vancouver, Toronto, Vancouver, Toronto. So, our cities seem to be married at the hip at least in the real estate media writer perspective so it’s always good to hear what’s happening on the street, so to speak, of what’s actually happening in the market and find out what’s real and what isn’t. Yeah, I’ll open it up to you guys and just sort of say what’s new? What’s new in the market today versus February? What’s hot and what’s not?

Matt: Yeah. There’s been definitely some changes since February. Yeah, it’s funny to think of the media. I was saying to Adam earlier, last week or a week and a half, the media headlines at least nationally have been dominated by negative news and that’s definitely not our market here. I think we spoke to you just before the market took off and this spring has been exceedingly busy, very similar to the spring of 2016, actually. Maybe urgency was slightly down, but multiple offers on everything. Prices increasing quite rapidly especially in the condo sector.

Adam: Yeah, it’s funny, Andrew, last time we talked to you, Matt and I thought we were going to get a breather there. I remember I had plans to get back in shape and we were going to have a lot of [crosstalk 00:02:30]. That didn’t happen. Yeah, we thought we were going to have a lot of time in the market here and then everything just went crazy.

Andrew: You started planting that vegetable garden. You were thinking about buying that hobby farm. You took up woodworking, and then, boom.

Adam: Exactly. Exactly.

Andrew: The market. So, yeah, so the market is doing much better in Vancouver today in July 2017 than it was in February 2017, it’s safe to say, based on your comments there. What in particular, like what are the hot segments of the market, either property types or areas, and what areas are not doing as well?

Adam: Well, it’s interesting, and we just kind of talked a little bit about Toronto before we started recording and it’s interesting that condos and townhomes really kind of powered through the slower period. We saw the detached market get hit first, and even though things did pick up, there was a spike of activity in detached, specifically on the east side in our spring market. You know, sales ratios haven’t really changed too much. They’ve been kind of hovering around a balanced market for East Vancouver and the west side, so you’re looking somewhere between about 16, 21% in around there, so really balanced for buyers and sellers, but you know, our downtown area and kind of the immediate surrounding areas for condos and, or for townhomes have been exceptionally busy, and it’s been busy almost the entire time. We’re looking at sales ratios of close to 70 to 100% or so.

Matt: Yeah, and just to add to that, even out … Let’s see. Developers are building along SkyTrain lines here, and the prices in location that a year, two years ago, nobody would have wanted to try a condo are close to $850, $900 a foot for new construction, and people are slitting each other’s throats to get those, even if it’s 45 minutes outside of the city, and the SkyTrain.

Adam: So nobody really saw that coming, but the condo market along the SkyTrains and in the city center are, yeah, very, very on market.

Andrew: That’s interesting, actually. I was speaking to one of my clients who lives in Vancouver who recently invested in a condo here in Toronto. They had a similar story about just how prices in the SkyTrain, suburban SkyTrain pockets have just skyrocketed and how he just saw the pattern over and over again, is what he was saying, of areas that were once considered too far away, suddenly become extremely popular and prices rising rapidly, and he, interesting enough, he bought one of those properties here in Toronto on a … In a … Well, in Vaughan, basically, in Vaughan, which is a suburban area which is getting the new subway connection because he basically could see the exact same … He thinks the exact same thing is going to happen in Toronto, which is something we … We haven’t had a lot of new transit in Toronto in decades, so it’s not something, or sort of a pattern that we’re used to seeing, but that’s interesting that you also comment on that, too.

Adam: Well, in Vancouver I think people are hyper-sensitive to transportation lines, mostly because we don’t have a lot of places to go, right? Where we’ve got limited land space here, so what’s interesting is a lot of people just look at the 20 plus year forecast for transportation lines and they do their investing that way, monitoring what the city is doing and then also what the province is doing.

Matt: Yeah, and just to add to that, I mean the prices in downtown Vancouver, and I think a lot of investors are looking outside the city because the numbers make sense. If a building’s … Just to give you an example, if a building from 2003 downtown [inaudible 00:06:47] has a one bedroom at 620 square feet, we’re looking at $700k, $730k now. You know, downtown the prices are so exceptionally high that people are expanding out and the rents are still good out there, so it makes a lot of sense.

Andrew: So, just to give us some context, what is an average … If you want to, if I come to you and I say I want to buy a condo, downtown Vancouver, in a good area, in a good building, what am I approximately paying per square foot?

Adam: About $1000.

Matt: Yeah, between $1000 and $1200 I’d say.

Adam: Yeah, and $1000 would be kind of … You could get some good … You could get a good product for about $1000, $1100 a foot. For a one bed.

Matt: Yeah, but for [crosstalk 00:07:33] come up considerably over the last year.

Andrew: Okay, yeah, so you’re about 20- [crosstalk 00:07:39]

Matt: Yeah, it wasn’t very long ago when we hit the $1000 a square foot mark, right? I mean, that feels like it was-

Adam: Well, not with where it was so blanketed, I mean, that’s kind of the idea. I remember when the first developers started charging $1000 a foot and everyone thought it was crazy, and now you look back at those days and what it did was just elevate all of the areas. Everybody wanted $1000 a foot, and now-

Matt: Well, and pre-construction is a new development right now, Mirabel, and it’s about $1700 a foot and people are like, not a bad value.

Adam: Or there’s the Kengo Kuma Project, which on average was $2000 a foot, right?

Andrew: Wow. $1700, $2000, yeah, those are numbers we haven’t seen here yet, but we’re … Yeah, Toronto’s on sale. Exactly. We’re tracking behind you guys by about 20, 25% it sounds like. So, we get headlines and stuff, we get snippets here in Toronto about what’s happening in Vancouver. What are we missing? Where are the headlines wrong? What’s the story that’s not being told about what’s happening in Vancouver right now that we here in Toronto should know about?

Adam: Well, it’s interesting, because the media in our opinion is always about three to six months behind the story, right? So, it seemed like it was about two, three months ago that there was a lot going on in terms of media stories saying, “Look at the Vancouver market, is hot,” and that was about three months after we were telling people, “The market’s really picked up,” and now we’re starting … We’ve been feeling the last little while where there is a slight shift, and I don’t know if this is seasonal, but it seems to be … I mean we’re now deep in July and in August, always, people are focused on getting their holidays in before the kids go back to school and that sort of thing, so there will be a slowdown, I believe in the coming weeks and we’re already starting to feel that. We’ve noticed a lot of properties that would get multiple offers are not getting as many offers or potentially no offers at all, and then certain price bands are shifting as well.

So that’s one of the stories, and then the other story is if you’re not following Vancouver politics, there’s … Our city right now, the affordability question and the political divide and new regulations coming in to try … We’ve moved it … So obviously, we had a government change in BC. We’ve got the NDP now, so really it’s a story of summer slowdown and also political maneuvering and new policy coming in that’s going to be curbing the market.

Matt: And the other story I think the national headlines could miss is just how different market segments are performing and I kind of spoke to that a little bit, but just to give you an idea here, east Vancouver a year ago, was our hottest market, I’d say, or a year and a half ago, before the Homebuyers Act. It was setting the pace. You look at the stats right now from June 2016 to June 2017, that market’s basically been flat. It’s 1.5% increase in the last year. Downtown condos are up 15.2% in the last year, so since the Foreign Buyers Act, we’ve seen the condo market just take off, detached homes have … They’ve [inaudible 00:11:06] flat market, and within the condo market, and we spoke about this very recently on our show, there’s a big distinction as well. Studios and one beds have the prices [inaudible 00:11:18] catching two beds now. It’s … Two beds seem very cheap when you look at the price differentiation between two beds and one bed.

Adam: Sure, and just to echo that, Matt and I are constantly looking at the different gaps in the market, because some, there needs to be a logic between the difference in the price point of actually owning land in the city versus owning a condo, and that gap is really, really shrunk down, and then like Matt was saying, the difference between one beds and two beds doesn’t make sense anymore as well, so it’s a strange time in terms of the price band and the type of product that you get, for sure.

Matt: Yeah.

Andrew: And you’re seeing, so, a lot of pressure, I’m hearing you say basically a lot of pressure at the bottom end of the market. Affordability, people looking to get into the market, buying the smallest, cheapest units, really driving those prices up over the last year, and as you work your way up the market to the top, less and less upward pressure on those, the pricier properties.

Adam: Well, that’s just it, and I mean, the numbers really show that as well, so when you look at the sales ratios and you break it down on price band, if you’re looking, it’s the top end of each market segment that is really suffering.

Matt: Exactly.

Adam: Anything on the west side above $3 million is really soft, anything on the east side above $1.75, this is for detached, and then downtown the same thing holds true when you start to get to the higher price points.

Matt: Yeah, like over $1 million it starts going down, $1 million, $1.5 million. Exactly.

Andrew: Looking back over the last 12 months, the foreign buyer tax, you guys have had it now for almost exactly 12 months in Vancouver, what are sort of the top one or two learning points that you would sort of take away from a year of experience with that tax on your market and how it affected things?

Matt: Well, one thing I would take away is it’s really hard to predict what the future holds. When we spoke to you in February and when we were helping people buy last fall, like November, I was just saying because we were speaking to you about Toronto, Andrew, and you were saying, “Now is a great time to buy,” and if Toronto’s anything like Vancouver, you’re absolutely correct. We were helping people buy last fall when the market was soft across the board where were still in that hangover phase, but nobody could have predicted that once spring hits, 2017, the market just took off again, and it turns out those people that pulled the trigger in November, December, those were smoking deals. They had tons of choice, lot of inventory, and yeah, it was a fantastic time to buy.

Adam: Yeah, and I would say another thing that really rings true, and I mean this is not … I don’t think this [inaudible 00:14:15], but just how powerful the media is in a marketplace, and I mean how a lot of negative media attention can really make people kind of pull back and sit on their hands and create a waiting period.

Andrew: Right. Yeah, absolutely. So many people just taking the wait and see approach, but eventually they are going to jump in, and they-

Adam: Well-

Andrew: They tend to jump in all at the same time, don’t they?

Adam: Yeah, and especially if the demand is there, like that’s one thing we’ve seen in Vancouver. There’s the pent up demand that just became, would you say more and more pent up, over the course of the latter half of last year? And that’s what’s been the key driver this spring is just, like, overwhelming demand, very limited supply, and that’s the fundamentals were still there, the market was still, would have been strong. I think that policy just really … It was like the punch in the nose.

Andrew: Now I’m just going to ask your opinion here, but Toronto obviously we got the Foreign Buyer Tax now, too. Toronto obviously is slowed down since the tax was introduced. Toronto is also seeing detached market slowing down much more than the condo market. In fact, condos are still basically a sellers’ market. Do you think … What’s your opinion? Do you think that Toronto will follow a similar, or the same, path that Vancouver was on, or is it just impossible to say because they’re different markets?

Adam: You know, I mean it’s interesting. I guess another learning point that we’ve kind of taken away from this is that location and lifestyle is important to people at the entry level of the market, and I think what we’re going to see is detached and areas that, first of all detached because of the price point, but also if you’re not around a SkyTrain or if you’re not in the city center, we’ve seen downtown Vancouver condos outperform almost everything and the reason being is I think people want to invest in the city, people want to invest in vibrant areas, and also there’s this kind of lifestyle trend going on at least in Vancouver, and I’m sure it’s the same in Toronto where millennials and young people are way more willing to raise families in condos, and also they want to be living in cities and they’re prepared to sacrifice space-

Matt: Yeah.

Adam: Or lifestyle.

Matt: And not only millennials, downsizers as well.

Adam: Totally.

Matt: That’s a huge driving force of people moving downtown into downtown Vancouver.

Adam: So, I mean I guess the lesson would be I wouldn’t be surprised if Toronto condos in the downtown core and kind of the happening areas continue to hold value and to do well, and I think the greater Toronto area where there’s room for expansion will probably get hit the worst.

Andrew: Yeah, absolutely. Are you seeing … Over here in Toronto, a lot of people are freaking out over the new Bank of Canada raising the interest rates a week or two ago, again, saying, “This is another reason why the sky is falling and things are,” you know, the whole market’s just going to crash, or something like that. That’s a popular sort of feeling and sentiment on the street with some people here. How did you … How was the news taken on the street, so to speak, with buyers and sellers in Vancouver?

Adam: You know, it’s interesting. We’ve had a few deals fall apart that wouldn’t have fallen apart earlier in the year, where I think it’s more about … I was speaking to a mortgage broker, or actually we were … We had a mortgage broker on the podcast a couple weeks ago talking about how [inaudible 00:18:19] is auditing banks a little bit more carefully and obviously the rules and … easier loopholes were getting tightened up a bit, where it’s just a little bit more challenging for brokers to pass things that they could have typically passed, so I guess that’s a roundabout way of saying that financing is a bit trickier, but generally speaking, it’s a marginal increase and it’s also a sign that the community and economy’s doing well, right?

Matt: Yes, and I was just going to add here to Adam’s point, and the broker we had on pointed out, “It’s $13 on every $100,000 of your mortgage,” right?

Adam: It’s not a huge change. It’s passed over, in Vancouver at least. I don’t think it’s really impacted the market tat all. If anything, maybe people that had rate holds are buying. We’re seeing a bit of a spike in activity of people that have really great rates and doesn’t pull the trigger.

Matt: But there’s no … It sounds actually like it’s impacting Toronto in a way that it’s not here. There’s no real sky is falling talk about the … I think and like Adam said, it’s less about the interest rate hike and more about the policy tightening, I think, where people are just having trouble getting the financing.

Adam: Yeah.

Matt: BC politics are more alarming, I think, to some people.

Andrew: Yeah, well I would think a lot of people would definitely agree with that, and Ontario, too. The politics are a lot more alarming than the actual interest rates. Guys, I know you’re running out of time and you’ve got … I’ve got to get going here. I really appreciate your time on the show today. If people want to get ahold of you, I’m sure we’ll talk again. If people want to get ahold of you in the meantime, what’s the best way for people to do that?

Matt: You can visit us at VancouverRealEstatePodcast.com. That’s where you can download our episodes and you’ll find our contact information there as well.

Adam: Yeah. We’re also on [inaudible 00:20:21] if you’re interested in the show, and we have a talk every week on Wednesday and we talk about the market here in Vancouver, so, for sure.

Matt: But thanks for having us, Andrew.

Adam: Yeah, we really appreciate it.

Andrew: Awesome. Great, thanks guys, and we’ll talk to you again soon.

Matt: Okay. Thanks, Andrew.

Speaker 1: Thanks for listening to the True Condos Podcast. Remember, your positive reviews make a big difference to the show. To learn more about condo investing, become a True Condo subscriber by visiting TrueCondos.com.