There’s only one thing wrong with the Toronto real estate market

Andrew la Fleur: There’s only one thing wrong with the Toronto real estate market. Find out what that is on today’s episode.

Speaker 2: 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 la Fleur: Welcome back to the show. Thanks for tuning in today. The stats are in for the month of May. Toronto Real Estate Board, they just came out a couple of days ago and I have had a chance to look at them, and digest them, and check out what is happening in the market. I wanted to come at you as I often do on a monthly basis and share some of my thoughts of what I’m seeing in the market as a whole, and specifically of course, in the downtown Toronto condo market, which is what I’m going to be … What I track most closely and what I’m most interested in as a condo investor and as somebody who helps people invest in condos. The downtown condo market is really the litmus test for the overall condo market and that’s where the bulk of our investing is going to be as condo investors is downtown.

Andrew la Fleur: We’re always tracking that very closely. I’ve been tracking the downtown condo market closely on a monthly basis for over 10 years now. I’ve got a great spreadsheet going back, let me just pull it up here, going back to 2003 to today. I’ve got all the numbers for the downtown condo market. I’ve been looking at this market for a very long time. I feel very comfortable talking about it and hopefully you can get some value out of the insights that I’m going to share with you today. Let’s talk some numbers. Overall, the entire GTA, again, if you’re not familiar, the most important statistic I always look at is the sales to listing ratio. This is the number of sales in a given month divided by the number of active or available listings in a given month. That is going to give you the best … That’s the one stat that, in my opinion, is going to give you the best take on the market.

Andrew la Fleur: It’s going to give you the temperature of the market, how hot or cold things are, and it’s going to give you the direction of the market. Are things likely to move in an upward direction, or are things likely moving in a downward direction, or are things likely going to remain the same? When you are looking at the marketing, if that number is below 20 percent, then likely that is a cold market, that is a buyer’s market, that is a market that is likely to not move up. It potentially could move down. If you’re between about 20 percent and around 45, 50 percent, that is a pretty balanced market and it’s likely to kind of stay flat or move up only slightly. If you are above 50 percent, that is a seller’s market and prices are likely to move up. The higher above 50 percent that you are, the more likely prices are going to go up and the faster rate which prices are likely going to go up.

Andrew la Fleur: To give you some perspective, the Toronto market overall has been pretty much in seller’s market territory for most of the last decade. Seller’s market is sort of a normal place for the Toronto real estate market to be overall, over a long period of time. We’re specifically looking at the downtown condo market. Historically, over the last 10, 15 years, it’s usually been a more balanced market. The number has usually been downtown around 30 to 35 percent, that’s been sort of the typically average over the last 10, 15 years, 30, 35 percent sales to listing. But, of course, since about 2016, that has all changed and it’s been a strong seller’s market. The number has been well above 50 percent, strongly in seller’s market territory for most of the last two years. As a result, we’ve seen prices rise dramatically.

Andrew la Fleur: With that context being laid, let’s talk about some numbers. Across the GTA all property types, you’re looking at 37 percent sales to listing ratio for the month of May. 37 percent, that puts us definitely in a balanced market territory. It’s getting a big on the higher side of balance. Overall, the market is balanced. Prices are likely … Directionally, you would say they’re probably going to be moving up slightly from where they are, but nothing crazy. They’re certainly … Prices are not overall moving down, that’s for sure. Looking … Breaking it down by region, Peel region is a little bit higher than the overall average at 45 percent. York region, quite a bit lower. York region still struggling, the weak spot in the market still is York region.

Andrew la Fleur: The Markham, Richmond Hill sort of area, 19 percent, 19 percent. Still a buyer’s market in York region overall. Durham region, East side of the city, 38 percent so pretty much right in line with the overall market and we’ll finish with Toronto, city of Toronto is at 53 percent sales to listing. Definitely a seller’s market in Toronto. Again, we’ve seen this story for the last six months or so, maybe even a year where Toronto continue to outperform the 905 regions. That’s been pretty normal most of the time over the last 10, 15 years that that is the case, where Toronto is going to be in a seller’s market and other areas may not be; or Toronto is a strong seller’s market where others maybe are weak seller’s market. That’s normal.

Andrew la Fleur: Breaking it down, look at condos specifically. Condos overall, across the entire GTA, 59 percent sales to listing ratio. Overall, looking at condos anywhere in the GTA, strong seller’s market, prices are still moving up quickly. Looking at Peel region. Peel region continues to surprise me, sitting at 63 percent. Again, if you’re looking at buying in Mississauga area, then it’s not a bad time at all to buy a condo, prices are rising and it’s a good time to get in. You’re likely going to pay more for your condo tomorrow than you’re paying for today if you’re buying in Peel region. York region, remember we said York region overall is 19 percent, buyer’s market. Interesting, the condo market is sitting at 32 percent. It’s a balanced market there in terms of condos. That’s good to see.

Andrew la Fleur: City of Toronto for condos, the entire city of Toronto city sitting at 68 percent, 68 percent, a strong, very strong seller’s market territory. Finishing off with the downtown market specifically, just downtown Toronto, we’re sitting at an incredible 76 percent. I’ll just make a quick note that earlier this week I Tweeted out that the sales to listing ratio for downtown was 88 percent. That was incorrect. The number is actually 76 percent. I did my math wrong. I don’t know exactly what I did. I checked the numbers on my iPhone and, well, I screwed up. I apologize for that, for those of you who saw that Tweet. A lot of people retweeted it and so on. Nevertheless, 76 percent, 88 percent, not really a big difference in the story. That is that the downtown condo market is, as I said in my Tweet, “A raging, hot fire of hotness,” or something like that.

Andrew la Fleur: It’s extremely hot. 76 percent is just off the chart. Again, historically, you’re looking at 30 to 35 percent is what we’re sort of used to for downtown condos. You know, if you got the odd month … Most of the last 10 years, if you’d see a month where it was 45, 50 percent, you’d say to yourself, “Condo market is going crazy.” We’re way, way, way past that. We’re not at the crazy highs of like 100 percent, 110 percent where we hit at some points early last year, but still, very much entrenched in a strong seller’s market downtown at 76 percent. Looking at sales, I mean, sales are down. Sales are definitely down for condos. The month of May downtown, 655 sales this year, versus last year, last year 801 sales, the year before 2016, 818 sales. 2016, 2017 when the market was at its highest point, the sales numbers were higher.

Andrew la Fleur: Obviously, prices were much, much lower in 2016 and 2017 than they are today. When prices are rising so much, then obviously that’s going to eventually be having an effect where buyers are being shut out of the market and you would expect the number of sales to begin to taper off when prices are rising so rapidly. Going back to 2015, that’s really the last year, most recent year, where we had sort of a more normal market. You look at the last 10, 15 years, again, taking the big picture; how many condos are we typically selling in this time of year? Going back to 2015, 583 condos were sold in the month of May versus, sorry, that was 2015. Again, this year, 655. We’re selling a lot more condos than we typically have in years gone past, but not as many as we did the past couple years when things were off the charts, bananas.

Andrew la Fleur: Probably just some gravity setting in, as I said, prices … When prices rise 40 percent in a two year period, then obviously you’re going to see some gravity set in where people are just like, “You know what? I can’t afford to buy anymore. It’s just out of reach.” Less sales are happening. Interestingly, again, the supply side continues to be the big story. Going back … Again, go back to 2015, the last sort of normal month of May year that we had, there were 1,932 condos available for sale in the month of May, 1,932. This month, 2018, how many condos are available for sale? 865. 865. Way less than 50 percent of what there were in the last sort of normal year. Less than what there were last year. Last year there were 975. 2016 there were 1,584. From 2015, 2016, 2017, 2018, the trend is sharply going down in terms of number of condos available for sale.

Andrew la Fleur: The supply is very, very low. After two years of very high sales like there’s not much to buy. Everything is being bought up, everything is being rented out, supply is very tight. Supply continues to be extremely tight. I went back and said, “Well, when was the last time that there were approximately this many condos available for sale downtown?” I had to go back all the way to 2009 to find that there were 839 condos available for sale at this time of year in 2009. We’re in 2018, there’s approximately a million more people living in the GTA, a million more bodies, a million more people needing housing, living in the GTA than there were the last time we had this many condos available for sale. We have a million more people, but we have the same number of condos for sale. The math just doesn’t work. What does that tell you? Prices are going to continue to rise if something doesn’t dramatically … Something doesn’t change dramatically on the supply side of things.

Andrew la Fleur: We need way more condos available for people to purchase. Because if we don’t, prices are rising, continuing to rise very rapidly, much more than what is sort of considered normal over the last 10, 15 years. Maybe this is just the new normal. That is one possibility that the new normal is no supply, rapidly rising prices, rapidly rising rents as well, as more and more people are priced out at being able to buy a condo. Well, they’re going to continue renting or they’re going to rent instead of buying. That’s going to continue to push the rental prices up as well. Again, the rental prices are rising still at double digit paces. Now, we’re pushing almost two years now straight of rental prices rises at double digit pace.

Andrew la Fleur: Here’s some quick takes from these stats and how I’m interpreting them from what I’m seeing from the market. As I said in the intro, there’s only one thing wrong with the Toronto real estate market right now. There’s only one thing sort of preventing it from being a seller’s market once again. That thing is access to credit and mortgages, and the ability for people to actually get mortgages to buy. The mortgage rules and the stress tests and everything have just artificially pushed out so many potential buyers from the market. Particularly, buyers of lose rise homes which, by definition, costs more than condos. That is why, overall, we’re seeing the market sitting at 37 percent instead of at 47, 57, 67 percent where it typically would be at this time of year.

Andrew la Fleur: That’s really the … If there’s anything wrong with the market, I mean, overall the market’s fine; 37 percent, the market is completely fine. If you want to say and be nitpicky about it and say, “What’s wrong with the market? Why aren’t things going better in an overall sense?” I would say the only one thing wrong is, again, access to credit and ability for people to get mortgages because of this stress test thing. Number two observation I want to share with you is just, again, recapping what we’ve seen. Overall, there’s a balanced market. We have struggling pockets like Vaughan … Sorry, not Vaughan. Like York region and we have some surging pockets like the downtown condo market, which again, is at 76 percent sales to listing.

Andrew la Fleur: That’s pretty much a similar story of what we’ve seen the last few months, so nothing too new there. The third thing is a big question that I think is outstanding is, what … Is the market going to change in the months ahead? Well, think the big question is, what happens when the headlines start to change this summer? Up until now, all the headlines have been … Everything is down, down, down. The news is bad, bad, bad. If you’re just catching the headlines and hearing people talking around the water cooler, people are just saying sales are down, prices are down overall compared to last year, compared to the crazy highs of last year. But, as we know, it was about … It was the month of May last year where the fair housing plan came in and the whole market took a dramatic turn, right?

Andrew la Fleur: Starting in June, but more specifically in July and August is when once we are comparing stats to July and August of 2017 instead of as we’ve been doing, February, March, April of 2017 when the market was at crazy, crazy highs, things look really bad compared to those months because that was all time crazy highs. Now, we’re shifting into … You know, the market has sort of been more or less really flat since June, July of last year. Once the stats start coming out, market is flat, or hey, market is actually, prices are up. What a minute? When the headlines start reading like that, prices up, sales up, as opposed to all the down, down, down news, I think we might see a shift in the market. We might see a sentiment change in the market, in the buyer’s perception of what’s going on and it will be very interesting.

Andrew la Fleur: I’m very interested to see how that plays out in the market in the summer months, but especially heading into the Fall market of September, October. How is that going to affect sort of buyer’s sentiment out there, seller’s sentiment? Will there be a lot more confidence in the market because of those headlines starting to shift and starting to tell people that prices are actually up and people start to think, “I’m missing out,” instead of I’ve been sitting and waiting on the sidelines waiting for prices to continue to go down. Some people are going to say, “Whoa, I am now seeing prices go up. I need to get in quickly.” It will be interesting to see how things change when the headlines change.

Andrew la Fleur: The final point, and something that I’ve been mentioning a lot, I’ll probably continue to talk about this, especially for condo investors. That is, get ready, brace yourself, for the craziest rental market, rental season ever, I believe, coming up in the summer of 2018 in the months of July and August. We are going to see prices and rents that we’ve never seen before. We’re going to see biding wars for rental condos that we’ve never seen before. It’s just going to be a perfect storm. If you have a condo that is coming up for occupancy this summer, it’s just going to be a dream summer for you as a landlord to rent out your condo. There’s going to be more demand than ever before, I believe. Always in the summer months, it’s always the peak of the rental season. That’s when the new bar is generally set of sort of new price points are set in buildings. The bidding wars are happening. All of the students and everything are pushing the market to its peak in those months of July and August, in particular, and for August 1st, September 1st in particular, those rental start dates.

Andrew la Fleur: We’re going to see the craziest rental market ever, brace yourself. It’s going to be nuts. People are going to … You’re going to be looking at what stuff is renting for come September and October. You’re going to be like, “What a minute. What? I could have rented this place back in …” When are we recording this podcast? In June, so, “Back in June, I could have got this place for 2,100, now it’s 2,300. What happened here?” Prices are going to go up dramatically this summer. It’s going to be nuts. More and more people being priced out at being able to buy, mortgage credit not available, supply at all time lows, no new rental housing being built, pent up demand. It’s just a perfect storm. There’s so many factors leading up to this. Nobody’s really talking about it, but you’ll see. You’ll see it happen. July and August, I think, it’s just going to be crazy.

Andrew la Fleur: If you’re a tenant, if you’re a renter, I wish you good luck and God speed. If you are a landlord and you’re fortunate enough to have a place that you’re looking to lease this summer, then congrats. You’re going to do very well and you’re going to be pleasantly surprised, I believe, with the rents that you’re going to be getting this summer. Okay, there you have it. That’s my take on the market right now as it stands. I hope you enjoyed this episode. I hope you found something useful from it and gained some value from listening. Go ahead and share this with somebody that you know that could benefit from listening to this podcast as well. As always, if you want to support the show, if you want to say thank you to me for putting these episodes out there if it’s made your life better in any way whatsoever, then go ahead and leave a review on iTunes for me. I would very much appreciate that. Leave a rating or review on iTunes. It takes about 30 seconds of your time, much appreciated. Until next time, happy investing.

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