What I’m most looking forward to for the condo market in 2019

On today’s episode, I’m going to tell you what I’m most excited about for the condo market in 2019. Stay tuned.

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.

Hey there, and welcome back to show. Thanks for listening in. Andrew la Fleur here as always in your earbuds or your speakers or wherever you’re listening to this podcast. Thanks for tuning in. As I said, I want to talk to you what I’m most excited about in 2019 and I was looking at one of the latest press releases from Urbanation, Urbanation who tracks the condo market. They put out their final numbers for this month, a couple of weeks back. They put out the final numbers for the condo market in 2018. the results are in, and obviously the big headline that most of the media and things are picking up on and the fact that condo sales, total sales for the year at about just over 20,000 sales in 2018 for the pre-construction new condo market in the GTA. And that is obviously down significantly from 34, almost 35,000 sales in 2017 and around 27,000 in 20 16.

So that brings me to my first point that I want to bring up, which is overall, this is, I told you so. Okay? So if you’ve been listening to this podcast for the past year or two, you’ve been hearing me say over and over and over again that we’ve been in a crazy, unusual, not normal time in the condo market and as condo investors, it’s been quite a wild ride. If you’ve been in the condo market from … if you got into the market before 2016, it’s been great. You’ve really seen massive appreciation on all of your assets, most likely you’ve seen huge rental appreciation as well across the board. But it’s been very unusual and I’ve been saying this for a couple of years now, basically everybody who’s a regular listener, you know this, that is, I’ve been preaching, don’t get used to this.

This is not normal. We’re not always going to be like this. Don’t get into real estate if you think that it’s always going to be like this, properties appreciate at 15, 20, 30% every year, rental rates go up 10, 15% every year and everybody just gets rich like overnight. It’s not how it typically works. It’s how it has been working with the past couple of years, and like I said, it’s been great, especially if you’re like me and you’ve been in the market, you’ve got assets that are sitting there from way before 2016, you’ve seen those assets perform so well for you. But again, I’ve been saying this is not normal. We should expect things to return more to a normal level, and that is exactly what we started to see in 2018 and where we’re pretty much at now. We’re back to more normal level. Still, I would say not really quite there yet, but we’re more entering into the normal territory as opposed to the crazy highs that we’ve seen.

So again to recapping mean look at the resale condo market, we saw 26%, these are from Urbanation numbers, 26% price appreciation in 2017. That was the wild year. 2017 that was when things really just shot off like a rocket and everyone was just like, buckle your seatbelt, strapping in and going for the ride. Everything everywhere was selling. It was a wild time. 2018 started off with more of the same, but things started to slow down as we got into the end of 2018. Overall, 2018 we saw in the resell market price appreciation of about 7.3%. So again, what is normal historical appreciation in the condo market over a long period of time? What’s a number that you can expect if you’re a longterm investor?

If you’re going to be in the market for decades at a time, you can expect that it would be somewhere around five or 6% over a long period of time. So we’re still above that, although we’re down significantly from the craziness of 2017. and if you look at the pre-construction market, how did that look over the past couple of years? So prices according to Urbanation jumped up approximately 56%, unreal, 56% over a two-year period, that sort of 2017 and most of 2018 period. Beginning in 2016, there up 56% over a two-year period. But the latest numbers as we look at prices going from Q3 to Q4 in 2018, prices were pretty much flat. They went up slightly 0.4% from Q3 to Q4 average prices.

So again, after going up crazy levels very, very fast, they are now leveling out. Things are slowing down. We are returning to normal. So as I said, this is an, I told you so sort of moment, if you’ve been listening to the podcast, you knew this time would come. And this time, it looks like is in some ways we’re here, we’re sort of returning to a more normal market as we could have expected, as we did expect and predict. So another point is, what’s interesting that’s happening in the market right now, as I mentioned preconstruction, prices leveling out, the amount of unsold units in the preconstruction market, significantly higher than it has been, although still below historical norms. We’re seeing more supply available, more inventory available versus again, 2016, 2017, anything that’s put on the market, gone, gone, gone, sold, sold, sold, project selling out overnight, everywhere.

So you put a project out there, it’s gone, as opposed to now we’re returning to more normal experience where you put a new project out there and you sell 30, 40%, and then you slowly saw the rest, you get it under construction and you slowly sell it out over the four year period that’s being built. Normal, always typically like that. Selling out entire 50 story buildings in a weekend, not normal although we’ve seen that a lot in the past couple of years. Again, that is not historically a normal situation to be in and it’s indicative of an extremely unusual market, which again, it’s great if you’ve already been in the market and you’ve been enjoying that, it’s great. But if you’re a longterm investor, you know that this is a blip on the overall radar and over time, we’re not going to see too many years like that and we shouldn’t expect that real estate markets always be like that.

But what’s interesting right now is the resale market, if you’re doing a temperature check, I’d say the resale market is probably hotter than the preconstruction market right now. If you look at resale, just pulling up condos.ca current stats right now, resell prices downtown are up about 12% right now over the same period of time last year for the downtown condo market, which is interesting. So prices still rising downtown at a very significant, much higher than normal pace, but still not the 25, 30% that we were at in the craziness of 2017, but still again above that five to six sort of normal longterm threshold level. Interesting also rental prices still going up, still up there, still way above normal, again, rental increases normally around just a bit above inflation. So sort of three, 4% long term sort of average. We can expect rental rates downtown going up now at 9%, currently 9% increase over last year.

So resell market, if you just look at that and what’s happening there, it’s still very hot, still very strong. Interesting that rentals are strong as well. And like I said, look at preconstruction, what’s happening in the market there. The latest stats we have from Q3 to Q4 prices sort of flattening out. We do see projects not selling out overnight as they were before, but rather going back and selling 30, 40% overnight as opposed to selling 90% overnight. So interesting there. We do expect that the preconstruction market typically we’ll trail the resale market in that sense. So after some period of time of the resale market being hot, we would expect that the preconstruction market would then follow. So we do expect that if this trend continues, prices keep rising and resell, then it’s going to make preconstruction more attractive. And that’s the flow that we would expect.

But the main point, as I said that I want to bring up in this podcast as I conclude this podcast is that what I’m most excited about for 2019 is that I think 2019 is looking like it’s going to be the year where developers, condo developers, once again, we’ll have to actually start competing for your dollars. You the condo investor. They can’t just throw up a building, a in the sales center overnight and sell the thing overnight, 90%. So they’re going to actually have to once again start competing for your dollars. So that’s a good thing, and that’s something I’m excited about as an investor and I’m excited about bringing to you my clients and listeners of the show, great opportunities where you can win, you can take advantage of builders who are once again having to compete for your investment dollars in their projects. So by offering obviously better prices, better value, better incentives, and so that’s a good thing to look forward to in 2019.

The speculators, I think, those jumping into the market, in the past couple of years, new investors, people just jumping in and then thinking, wow, this condo investing thing is really easy. I just buy anything anywhere and it goes up by 20% overnight, and my rental rates are this this year and next year they’re going to be 20% higher. Obviously that’s speculators jumping into the market, but as longterm strategic investors, those speculators are mostly going to be gone in 2019 and it leaves room for us longterm strategic experience investors, those of us who are smarter and wiser than ever and who have experience to find those pockets of value and to understand where the opportunities are, and to work with developers who are competing for our business.

Okay, there you have it. I hope you enjoyed today’s episode and now you know what I’m looking forward to most in 2019. I look forward to working with you as well in 2019 and helping you meet your investment goals. If you’re not receiving my weekly emails, make sure you do that. Make sure you signed up TrueCondos.com with your name and email. Sign up anywhere on TrueCondos.com to make sure you are receiving my weekly email updates because you don’t want to miss these opportunities that are coming your way this year. Okay? Until next time, happy investing. Talk soon.

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