Is It Time For Condo Investors to Start Looking At The Low Rise Market?

Andrew la Fleur:
Is it time for condo investors to start looking at the low-rise market? Find out 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:
Hi there. Welcome back to the show. Thanks for tuning in. Appreciate your time as always. Joining me here, wherever you are, thank you. Once again, if you are new to the show, make sure that you’re getting the most out of this show and my content by going to truecondos.com, signing up, becoming a subscriber.

Andrew la Fleur:
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Andrew la Fleur:
The stats are out for the month of June for the Toronto Real Estate Board and we’ve got some juicy new numbers to dive into and look at and see what’s happening in the market, and everybody’s always excited for the first few days of every new month where we get to see what the sales were like for the previous month to understand what’s happening in the market, where the trends are, where the opportunities are, where the areas of weakness are.

Andrew la Fleur:
As always, what I’m most interested in, what I look most closely at, what I’ve been tracking for the last 12 plus years here is what’s happening in the downtown Toronto condo market. We have lots of different sub markets within the GTA. The one that of course we’re interested in, we’re more interested in condos than in not and in particular we’re interested in what’s happening in the downtown condo market because that’s really the best sense of what’s happening in the overall condo market as well as it’s primarily where most of our portfolio is held, is in the downtown core.

Andrew la Fleur:
Although more and more often, as you probably know, if you’ve been listening and following me for a while, more and more we are looking at areas outside the downtown. But let’s start there, downtown condo market. What’s happening? And as you know, always like to look at the sales-to-listing ratio. The sales-to-listing ratio. The number of sales in a month compared to the number of active listings available in the month. That’s going to give us the best snapshot picture of what the market is like, the direction of the market, where things are going and the temperature of the market, how hot are things in the market.

Andrew la Fleur:
The downtown sales-to-listing ratio of course has been very, very high for the past going on three years now, way higher than it was in the previous decade. The market’s been very hot, prices have been rising very much, on a high rate, much higher than normal as well. The sales-to-listing ratio this month for downtown is 59%. 59%, that is down from the past few months. It’s actually down in general from what the month of June has been for the past few years, but it is still very high.

Andrew la Fleur:
Historically speaking, again, the norm for downtown has been around 30%. The average of, prior to the last couple of years, the average before that, it’s typically somewhere around 30%. A high month might be 40% but we’ve been way, way above that for the past few years as the condo market has been on fire and we’re still sitting at a very high number, definitely defined as a seller’s market. Definitely defined as a market where prices are rising at 59% for the downtown condo market.

Andrew la Fleur:
Breaking it down, how does that shake out? Well, TREB, the entire Toronto Real Estate Board as a whole, the condo sales-to-listing ratio is about 58%. So downtown is right on par with that. York region, the area north of the city, which has been struggling over the past couple of years in particular, it’s sitting at 38%, which is quite a bit lower, but still looking pretty good and looking sort of a balanced market. It’s definitely not a buyer’s market in York.

Andrew la Fleur:
Peel region is the standout. Once again, Peel region has really been outperforming. So Mississauga Brampton sitting at 79%. Very high compared to downtown at 59%. So condos in Peel continue to do very, very well. Somewhat surprisingly, but that’s affordability, affordability story continues to hold true. So, if you’re looking for something around 400,000 in the GTA, well, you’re not getting a house.

Andrew la Fleur:
You’re getting a condo. You’re not getting a condo in the city, you’re probably getting a condo in Peel region. That’s driving a lot of the demand for condos in Peel. Halton region; Oakville, Milton, that sort of area, 67%. Also higher than downtown, a very high number as well in Halton region.

Andrew la Fleur:
Overall the market, when you just look at that, thought you say, “Wow, the market is very strong.” When you compare those condo numbers to the overall real estate market, including all types of properties. For the full Toronto Real Estate Board, the sales-to-listing ratio was at 45%. That’s sort of a balanced market.

Andrew la Fleur:
It’s borderline going into seller’s market sort of a territory at 45% overall versus the downtown condo market. Again, 59%. Much higher than that. So the condo market still overall is definitely the hottest segment of the market. Definitely hotter than low-rise. Definitely, just looking at that alone, you’d say, “Well, prices are going to rise more in condos than they are in low-rise types of properties.”

Andrew la Fleur:
But if you look at the bigger trend of what has been developing and happening over the last number of months, definitely some signs of concern, some signs of weakness starting to creep into the condo market. Particular, the number of sales themselves. While the sales-to-listing ratio is very high, the actual absolute number of sales in the month of June is down from last year. It’s way down from two years ago, down from three years ago. It’s definitely a much lower number than you would sort of expect for this time of year.

Andrew la Fleur:
But what’s keeping the sales-to-listing ratio obviously very high, and what’s keeping it as a seller’s market is just the fact that there’s no supply. There’s nothing available for sale compared to historical norms. The amount of condos available for sale continues to be about half of what historical norms have been. So they’re just, people are not selling, and we talked about the possible reasons for that in previous episodes.

Andrew la Fleur:
If you want to go back and listen to the previous podcasts on that, I believe it was called the biggest mystery in Toronto real estate and how to solve it. That episode from a few episodes back, I talked about that. The biggest mystery being, why’s nobody selling? Why is there no inventory in the market? You can dive into that.

Andrew la Fleur:
Yeah, I mean, overall the market is, the condo market is very strong. It’s definitely a seller’s market. But the number of sales has started to be concerning. The number of sales sort of being way off of where you might expect them to be. Prices continue to rise, but the number of sales are sort of trending down.

Andrew la Fleur:
So what’s happening? Well, I think overall there’s a few things happening. What it seems to be happening I believe is that, it’s just prices have gotten out of reach for more and more people so the demand curve is starting to fall off a bit. Also, it’s been a couple of years since the first time home buyer or sort of the fair housing plan came into place. We’ve been a year and a half since the stress test has come into place.

Andrew la Fleur:
So, a lot of people who purchase those condos in 2016, 2017, even 2015, they have a lot of built up equity now. They’re starting to think about their next move. They’re starting to make their next move it would seem. And their next move is, they’ve got a lot of equity built up and I think a lot of those people are starting to go from the condo into the low-rise market. Starting to get into the townhouses.

Andrew la Fleur:
We see townhouses are way up. Prices are way up in the townhouse segment this month, semi-detached. Some of them are going to semi-detached, and a few people are going into detach. So, there’s starting to be a shift after condos really being the story of the Toronto Real Estate Market for the past few years. I believe there is definitely starting to be a shift back into the low-rise market.

Andrew la Fleur:
Not massively. It’s not a tidal wave change or anything like that, but it’s definitely momentum heading in the way of low-rise as more and more people have adjusted to the stress test and to the fair housing plan and everything else and they’ve taken, there’s just… time has gone by and more equity has been acquired and that is allowing more people to move into the low-rise market.

Andrew la Fleur:
Are first time buyers going into the low-rise market? No, they’re not. I mean, prices are still way out of reach for 80, 90% of first time buyers. You’re still over $1 million pretty much anywhere in the GTA for a decent low-rise home. In the city of Toronto, detached housing, you’re $2 million kind of a thing. So, it’s not like people are, oh, forget about condos. Let’s all just buy houses now. I mean, certainly not happening.

Andrew la Fleur:
But it’s just there isn’t equity buildup that’s happened over the past couple of years, especially as condo prices have risen a lot. So the gap between, another way to look at it is the gap between low-rise and high-rise, it shrunk quite a bit and so people are sort of doing that calculus in their head and saying, “I think I might be able to actually move up now from this condo and get into a house.” Whereas a year ago, 18 months ago, I was like, no way. It’s never going to happen. It is not possible. That is starting to happen.

Andrew la Fleur:
Interest rates are part of it as well. Interest rates have come down dramatically in the past six months or so. Now people are getting five-year rates, fixed rates at like 2.8%. I was talking to a mortgage broker this week, he believes that in the next few months rates will possibly go even further down. 2.5% perhaps for five year fixed money, which is just absolutely incredible. And about a percentage point less than where we sort of thought they might be and where they were six, eight months ago.

Andrew la Fleur:
All that is happening. 905 is starting to pick up; the low rise market, detached. The number of detached sales is up 20%. 20% in June versus the condo sales 905 are up 2.7%. Again, they’re coming from a very low number because the low-rise market has been down in the dumps for a couple of years and now the pendulum is starting to swing back. The pendulum is, it always goes back and forth and it’s starting to swing back.

Andrew la Fleur:
Another key point I just want to make is that the overall market sales are up from where they were last year. That’s a big headline you’re going to see in the mainstream media. Sales are up about 10%. That’s a good thing. But they’re still way below. Still the number of transactions in the resale market overall is still way below sort of a normal level or expected level of where sales should be based on our population. That’s something we’ve talked about time and time again over the last year or so.

Andrew la Fleur:
Probably the biggest reason for that is the stress test, is this artificial ceiling that the government has put on everybody and is keeping people out of the market. It’s keeping people from moving up in the market and it’s causing the market to just be way below where it otherwise would be. Especially given the fact that, over the past couple of years, our population continues to grow. We have 100000 people or more coming to the GTA every year.

Andrew la Fleur:
So you would expect the number of transactions to continue to grow every year. But since the fair housing plan of two years ago, the number of transactions has dropped off dramatically. It’s come up a bit, but it’s still way down. That’s a theme that we’re still tracking and we’re still anticipating at some point, whenever that stress test goes away or is adjusted or something, that will have a dramatic effect on the market and the number of transactions happening in the market.

Andrew la Fleur:
So, I want to finish in sort of the final point. It took me awhile to get here, but I’m going back to the headline of this podcast. Is it time for condo investors to start looking once again at the low-rise market. Background here again is, low-rise market has been really not a good market at all. Prices have been flat or down in some areas quite a bit over the past couple of years while the condo market has done very, very well and prices have risen dramatically and are still rising on a day-to-day, week-to-week, month-to-month basis.

Andrew la Fleur:
As we started off at the top, sales to listing ratio is still very much a seller’s market and that’s true in resale. It’s also true in pre-construction as well. So, condo market continues to do its thing, continues to march upwards. Meanwhile, the low-rise market, we sort of forgot about it. That’s been the big hype machine of Toronto. Real estate has always been the low-rise market up until a couple of years ago if you do recall.

Andrew la Fleur:
You can’t go wrong buying a low-rise property in the GTA was sort of the mantra. Condos are okay, but you just can’t ever go wrong with low-rise. That was always sort of the mantra of the Toronto real estate market. But of course that got completely flipped on its head over the last couple of years. So what’s happening now? Well, as I had sort of hinted at, I do believe it is time for condo investors to start considering and start looking at potential opportunities that might come in the low-rise market.

Andrew la Fleur:
The couple of caveats are, the problem still remain in low-rise that overall, generally speaking, prices are still very high. As I said, you still need over a million bucks for anything decent. 2 million bucks in the city of Toronto. So, I’m not telling anybody, “Go out there and buy $2 million homes in central Toronto as an investment,” something like that.

Andrew la Fleur:
The cashflow obviously situation, the cashflow obviously still sucks even if you’re buying duplexes. Even triplexes in some areas, you’re still not cash flowing these things in many cases. Certainly single family homes, you cannot cash flowing a single family home anywhere in the GTA, anywhere even all the way out to Hamilton and beyond. You’re not cash flowing a single family home.

Andrew la Fleur:
But I do believe there will be some opportunities. There are some opportunities starting to emerge as this market is starting to sort of wake up again. There are signs of some good opportunities that may be coming in the second half of 2019. I personally purchased a low-rise property myself as you may know. If you’re getting my emails, you saw my emails about the pre-construction sort of duplex type properties, secondary suite built in to these properties in Toronto in Lawrence and Black Creek Dr, Riverside by Citizen.

Andrew la Fleur:
There’s actually couple of units left there. If you’re interested you can reach out to me Andrew@truecondos.com. Call me 416-371-2333. Starting at about a million bucks for those, but you get two units. Something like that, it makes a lot of sense. It’s pre-construction, it is a low deposit, 10%. Cashflow prospects are looking very good and again it’s likely to be built for a couple of years and you’re putting down a very small amount of money to lock that thing up while the low-rise market again continues to look like it’s going to do well over the next couple of years.

Andrew la Fleur:
So if you can buy something that will cash flow, that’s pre-construction, it’s low-rise, that’s a good thing to get. Now mind you, those are very hard to find and they don’t really… there’s basically nothing out there right now other than, like I said, a couple of units left here at Riverside. Those are the sorts of opportunities that I’m going to be looking for in the second half and in the finish half of 2019. So, don’t be surprised if you’re receiving emails from me with opportunities like that in the months ahead.

Andrew la Fleur:
Now again, don’t expect me to send you a low-rise home for 400000 or something like that. Low-rise is still very expensive. It’s still out of reach for most investors. Most investors are not able to play in that sort of space unless you’ve been in the game for a while. As I said, a million bucks for these units with legal secondary suites in them here in Toronto, you’re up there. You’re definitely up there at the price point. So it’s not for everybody, but if you are an investor who you’ve got a decent amount of capital to invest and you’re looking to diversify a bit, stay tuned. Stay tuned for opportunities like that.

Andrew la Fleur:
All that, not to say that, forget about condos, condos are done or anything like that. Certainly not the case at all. Still continue to be our bread and butter, looking for opportunities in the condo market. Again, the reality is, that is where the affordability still continues to be. You want something in the 400000, 500, $600000 range. That’s going to be a good investment. You’re buying a condo, and there still will be great opportunities in that segment of the market as we move forward in 2019, so stay tuned for that as well from me.

Andrew la Fleur:
Okay, there you have it. Hope you enjoyed this episode. That is it for today. Until next time, happy investing.

Speaker 2:
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