Why the Toronto Real Estate Market Continues to Break Records

Andrew la Fleur:
On today’s episode, find out why the Toronto real estate market continues to defy expectations and break records. Stay tuned.

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, welcome back to the show once again. Andrew Flair here, your host. Thank you for taking the time to listen to me today in your ears, on your speakers, in your headphones at the gym, while you’re driving, wherever you are in transit. I really appreciate your time and I hope that I can provide you with some value today as you are thinking about the real estate market and thinking about your investments or making an investment in the market for the first time. So welcome and glad to have you here with me. Want to talk today on today’s episode about the latest stats that are out for the real estate market and they continue to just defy expectations. The market continues to break records and just keeps on moving upward despite everything that is happening in the greater economy in the writer world.

Andrew la Fleur:
Before we get into that though, I want to remind you again, if you’re not already receiving my weekly email updates with more insights and podcast links and videos and articles, as well as opportunities to invest in the condo market and the real estate market, make sure you’re getting those emails. That’s the most valuable thing that you can be receiving from me other than listening to these podcasts. You definitely want to make sure you’re getting my emails on a weekly basis. How do you do that? You just go to truecondos.com and you sign up on the website, pretty much anywhere on the website with your name and email and you will be getting those weekly emails, so make sure you’re doing that.

Andrew la Fleur:
Like I said, talking about the latest stats from the Toronto Real Estate Board. So the stats for the month of May have come out. We’ve also got some recent stats from the Altice group for new condo and new home sales for the month of April and the numbers are telling a consistent story that again the market continues to chug along, continues to impress, continues to defy expectations. We have been told for so long that this market is bound to fall and to crash and to have some major change in downturn or something’s got to give and various levels of governments are doing everything they can, it seems, in their power to stifle the market, restrict the market, reduce demand, reduce supply. They’re hitting at things from so many different angles to so-called hurt the market or slow it down. But the market just continues to impress and it’s really quite an amazing thing to see.

Andrew la Fleur:
Of course we’ve been tracking the market here on True Condos for 12 years at least and we’ve seen it all. We’ve seen the ups, we’ve seen the downs. The market to summarize is definitely up. The market to summarize is definitely strong. There are certainly some challenges facing our market and some headwinds and some things to be watching and concerned about as investors as always, but the picture is still very rosy. The long and the short of it is, look, if you have some money sitting on the sidelines and you’re wondering if you should invest or not, get your money out of your pockets, out of the bank account, wherever it is, sitting there out of the mattress and put it in the market. Invest. Don’t sit there and wait. You’re continuing to lose. You’re continuing to pay higher prices. Every day I get messages from people, “Should I invest? Should I buy here? Should I buy there? Should I buy this? Should I buy that?” Specific investments aside, yes, there’s good and there’s bad, but just get your money into the market if you’re on the sidelines. Don’t keep sitting around and waiting for some other greater opportunity because the market will just continue to pass you by.

Andrew la Fleur:
I’ve already bought a couple of properties this year. I’m definitely still looking to to hopefully add some more to my portfolio. So join me and join my clients and join us and get your money into the market this year. Don’t wait, don’t delay. The longer you delay, the longer you wait, the higher the price you’re going to pay and the lower your returns are going to be the more that you wait. So there’s no time like the present. You can’t go back and change the past, but you can start from where you are and change the future. That’s my pep talk for you for today.

Andrew la Fleur:
So let’s talk some numbers. The big number from the May real estate stats that I’m always checking with regards to the condo market would be looking at the downtown condo market as always. That’s the primary driver of market. That’s what we’re sort of most interested in looking at most of the time. That’s where most of the transactions are taking place in the condo world and it’s a good bellwether for the overall markets.

Andrew la Fleur:
Looking at the downtown condo market and our favorite stat, which is the sales to listing ratio, the number of sales in the month compared to the number of active listings that were available. So a demand and supply interaction. Always looking at that number. It’s telling us the temperature of the market, how hot or how cold the market is. It’s also telling us the direction of the market. Is it going up or is it going down or is it just kind of sitting where it is? So the sales to listing ratio for the month, downtown condos is 71%. 71% and again, I’ve been tracking this number going back about 15 years. Typically that number historically for most of the last 15 years has been around 30% on average, something like that. So if it’s around 30% we’ve seen moderate-low price growth, 2, 3, 4, 5% kind of price growth. As it gets higher and higher, above 50% especially, you’re into strong seller’s market territory. Pretty much that means everything that’s coming out on the market is selling right away. We clearly have a supply shortage when it’s getting into the above 50% range.

Andrew la Fleur:
When you’re hitting 71% like we are right now, again, it is a very strong seller’s market. Okay. So prices are definitely rising and you can expect prices to continue to rise at a higher than inflation sort of a bracket. So looking at the downtown condo market, prices, they sort of feel on the street level like they’re rising at around 7, 8% per year, which is much higher of course than historical averages. Down from the crazy highs of 2017, 2018 where we saw prices rising in the double digits, 10, 15, 20s, in some cases 30%. Hard to believe. We knew that was unsustainable. We talked about that a lot on the podcast back in those days. We knew that things were going to slow down and come back to a more normal level. I’m surprised that we still are not back at that normal level, to be honest. We’re still way above that 71%, the sales to listing ratio is still very high.

Andrew la Fleur:
The big story continues to be that nobody is selling. There’s very little inventory in the market. It’s quite a phenomenal and interesting thing to see that the inventory levels are … there are around 800, 900 units available for sale downtown versus 3, 4, 5 years ago you would see 1500 to 2000 units. So inventory is like half of what it was five years ago and yet the population, the number of people out there, therefore the number of people you would think it’d be looking for a place to buy as much higher, but yet the available condos for sale is much lower. Very interesting. So if you’re thinking our prices going to go up or down or sideways, they’re definitely going to go up. We’ve been seeing this for all year, 2019 continues. If you’re thinking, should I buy now or should I wait, if you’re in the resale market, if you’re looking to buy something for yourself or your kid perhaps living downtown or just in general, if you’re looking to buy a condo in the GTA right now to move into for yourself or for someone in your family, don’t wait. If you wait, you will be paying higher prices next week, next month, next quarter. Prices are rising and that sales to listing ratio tells us that very strongly.

Andrew la Fleur:
So that’s the first thing that jumps out and that’s the first thing I’m looking at and that’s the main message I have for you today really is condo market is still very strong and it’s going to continue to be strong. Second thing is look who’s back. The low rise housing numbers really caught most of the headlines in the mainstream media. The low rise housing numbers are … the sales figures are way up. Condo sales are kind of flat. Prices are up, but the number of sales kind of flat from 2018. But the low rise numbers, detached homes, semi-detached homes, row houses, those numbers are up huge. I mean around 30% for a lot of these figures. So after more than a year with the stress test, the market is definitely starting to adjust and absorb.

Andrew la Fleur:
Anytime there’s a big change like this, it takes some time, the market eventually absorbs, it adjusts, people slowly start making more money, people slowly start saving more money. They slowly start reentering the market after this shock to the system has taken place. So we’re starting to see more and more people do that. And there’s more and more buyers who have … they bought that one bedroom condo three, four, five years ago for 500,000 and that’s now worth 800,000. So they’re now making that leap into … they’re selling their condos, they’re making that leap into the housing market, the low rise market, they’re starting their families and so on. The normal cycle of the housing ladder is once again … looks like it’s igniting again, it’s starting again.

Andrew la Fleur:
And very interestingly you look at the new home sales as well, new low rise home sales. So preconstruction low rise homes across the GTA. It’s been really struggling since the foreign buyer tax and all the big changes that came into place with the stress test and everything. All of the … The big hit to the market from two years ago, 2017, Kathleen Wynne and everything. It was exactly two years ago approximately to now when we got hit with all those big changes in the foreign buyer tax and everything else. That was when the low rise market really took a hit, especially in the 905 especially in York region, dramatic drop off we saw there. So people were paying $1.4 million for a townhouse in York region and then overnight pretty much it went from $1.4 to like $1.2, $1.1.

Andrew la Fleur:
So the new low rise home market’s been really struggling and now what’s very interesting, we’re really starting to see a trend emerge where the low rise market is making a comeback. Sales for the month of April in low rise we’re up 81% compared to April of last year. So it went from 443 low rise homes sold across the GTA in April of last year to now 800 homes. Still a very low number historically. Still, way off the long-term average, but I believe every single month this year so far, we have seen year over year numbers are increasing, which is definitely a positive sign. Probably do more podcasts on this in the future. But the low rise market is definitely something to watch, definitely if you’re an investor. It’s definitely time to start thinking about getting back into the low rise market before the big bounce back happens. There will be a big bounce back. It got hit hard, it went down hard. There will be a moment where it is bouncing back and it looks like that moment may be happening now or very soon. So definitely something to watch and definitely a subject for more future episodes in this podcast, talking more specifically about the low rise market and what, what investment opportunities we have there.

Andrew la Fleur:
So the third thing I wanted to talk about is just the fact that this overall, this number of sales, while they are up, they’re still tracking way below where they should be. So Will Dunning, if you follow him on Twitter he’s got some great charts and stuff about this. I like his perspective on this. He’s been preaching this for over a year now. No one else seems to be picking up on this theme too much, but it’s very important. And that is the population of GTA continues to grow and that’s what’s driving all this real estate market anyways. News Flash, spoiler alert, why does the market keep being so strong when we just keep being told to supposed to slow down and it’s just not. Spoiler alert, it’s the population dummy.

Andrew la Fleur:
It’s the … The more people coming into … Like 10,000 people are coming to the GTA every single month and that number is increasing. We know that immigration is increasing. Another big headline this week that you might’ve seen was how mainstream media finally picking up on this as well. Something we talk about on the podcast for the past couple of years that Toronto is the fastest growing city in North America by like an exponential rate. It’s like as much as the next three, four cities combined, the growth that we’re seeing in Toronto. It’s not even close. We’re just destroying everyone else from a population growth standpoint. So that is what’s driving this market. That is what’s causing this big imbalance in supply and demand. We’re bringing in so many new people, but we’re not building enough new housing for them. It’s really not that complicated, although it’s a point that a lot of people just seem to miss.

Andrew la Fleur:
But going back to what I’m talking about here without getting too sidetracked is again the number of sales that are happening compared to our population is still way down. Will Dunning, I think his latest said, “Look, sales are up in the month of May. They’re getting … going in the direction of more, which is good to see, but they’re still …” I think he said 15%, something like that, “… below the average of the last sort of 10 years of where they should be.” But more importantly, as the population continues to grow, we should see more and more and more sales over time naturally, right? So we’re … population is growing but we’re seeing less sales, that is weird. And probably the biggest explanation for that again, is the stress test and all these government interventions to basically make it very difficult for people to purchase and buy real estate and afford to buy real estate. It’s also driving people more into the rental market, which continues to push rental prices up.

Andrew la Fleur:
So again, if you are an investor, you need to continue to be a very optimistic and hopeful and bullish on the future of real estate in this region because of the population growth. Until that changes, it’s just a … God’s greatest gift to us as real estate investors is this tremendous population growth and the population … and the people that are coming in here are educated and they have money and they’re drivers of economic activity. They’re not a drag on the economy. They’re their boosters of the economy. And they’re coming in for tech jobs and everything else.

Andrew la Fleur:
The story continues to be the same, which is keep buying real estate because the market’s going to continue to grow, there’s going to be ups, there’s going to be downs. But as long as this population growth boom continues and as long as we are this anomaly of North America, where else would you rather invest than here? It’s just such a no brainer. It’s so simple. So keep investing, keep buying. You’re buying for the long term. You’re not buying for today, this month. You’re not worried about price went up a dollar or went down a dollar this week, this month. You’re thinking, “Look a million more people, 1.5 million more people, something in that region is being added to this region over the next decade.” We cannot build enough houses, not even close. Prices will keep rising. Very simple. Keep buying.

Andrew la Fleur:
Yeah. So, and then I had a fourth point on my notes here, which I sort of touched on already, but it’s again, the stress test, the mortgage rules. They continued to distort this market, they continue to put a weird twist on everything and there’s a shadow over all this stuff with the weird stress test. This is a federal election. I fully expect there to be some big change to the stress test this year and I fully expect the market to respond accordingly. You can only keep a good man down for so long, or whatever the expression is. You can’t keep a good man down … whatever. They’re trying to keep the Toronto real estate market down. And to some extent, they certainly have done that. And their policies have worked. They’ve done what they’re supposed to do. They’ve lowered prices in a lot of parts of the city.

Andrew la Fleur:
But guess what? Again, we continue to truck along. Things continue to move forward and go up. Where are you going to live? You gonna rent? Okay, good luck. You’re bidding wars for rentals … You’re going to buy something. Well, the only thing you can buy is a condo, because houses are still way out of reach for most people. So the condo market keeps chugging along, prices keep rising, equity keeps building for people. They’re taking that equity, they’re moving up, they’re using that as a stepping stone to get into houses. It’s taking longer to get into a house than it used to 10, 15, 20 years ago but you’re still getting there.

Andrew la Fleur:
It’s hard … You can’t just jump in and buy that detached three, four bedroom house like maybe you could before, but you could still buy something. You can buy that one bedroom condo. You can buy that studio, you can buy something somewhere, get into the market, see that equity grow and then use it as a stepping stone to move up the ladder. Human nature, what people want, none of that is going to change. People continue to buy real estate and the market will continue to grow. What we’re buying and how we’re living, that all changes. How much we’re paying, the numbers, that all changes. But the drivers of all this stuff, the desire for shelter, the need … Sorry, the need for shelter and the desire to own the roof over your own head, that’s unchanged and it’s never going to change.

Andrew la Fleur:
So I continue to be very optimistic. Like I said, I’m still actively buying and I hope you are too. Okay. Starting to ramble a bit, so that’s a good time to cut this one off and catch up with you on the next episode of the True Condos podcast. Once again, hope you got value from this, hope you found it useful. And if you did, please share this with somebody that you know, pass it along. Tell somebody about this podcast, drop them a link, hit the share button on Twitter, Facebook, whatever it may be. Leave a review on the show to let me know and encourage me that you appreciate what I’m doing as well. You can always reach me. 416-371-2333, andrew@truecondos.com. Look forward to talking to you and helping you achieve your investment goals in real estate. Until next time, have a great week. Talk soon. Happy investing.

Speaker 2:
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