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The 1-Bedroom Condo Market Is On Fire! - FEB 28.18


I haven’t seen anything like this since….well, since this time last year.

Say what you want about the market; give your opinion on where we are.  But there’s absolutely no denying what’s going on in the condo market right now, and even the most ardent market bear can’t show us data to the contrary.

Let me take a moment to show you where we are, where we were, and God help us – where we might be headed…

 

HouseOnFire

I just couldn’t bring myself to use a photo of an actual building on fire, so this really cool candle will just have to do.

Folks, what I said in the introduction there, about “the most ardent bear showing us data to the contrary,” is said out of necessity, rather than self-consciousness.  I often remark that Toronto real estate makes for one of the most passionate, and often controversial, topics out there today.  The “Big Three” things you don’t talk about in social settings used to be money, politics, and religion.  Well in 2018, in Toronto, you can certainly add real estate to the mix.

Over the last couple of years, I’ve never seen the level of passion – and by that, I also mean excitement and joy, as well as frustration, anger, and resentment – expressed toward the Toronto real estate market.

It’s become a hobby for many, whether they own a home and are never moving, or are years away from owning one.  It’s also become an area of sensitivity, for many with aspirations.

So whenever I write anything remotely positive about the market, those that have different outlooks, or different wishes, come out in full force.

 

To my surprise, I received one response from a person who accused me of “fear-mongoring,” which I didn’t think made sense, given my bullish outlook, but perhaps he meant that I was trying to create fear for those that don’t own real estate?  Anyways, not important.  Within his email, was a list of a dozen reasons why the market could, or will, decline.  There was also a section on how TREB “fudges” the numbers each and every month, and that’s when I figured he was a tinfoil-hat type, and moved on.

So when I say today, “the most ardent bear can’t show us data to the contrary,” I’m basically asking for some opposing views.

The issue I always have is trying to convey what’s actually happening out there in the market, through my stories and experiences, and having the data to back it up.

Case in point, how about the 23-offer melee on a 1-bedroom condo on Front Street on Monday night?

Does that seem like a normal market occurence to you?

A relatively unspectacular, $499,900 unit, under-priced but not drastically, solicited twenty-three offers.

And it sold for almost $100,000 over the list price.

When I say “unspectacular,” I mean it’s nothing out of the ordinary.  It’s a great location, but the unit itself is not made of gold; it’s simply square footage.

But in the 2018 Toronto condo market, as was the case in early-2017, “just a condo” is good enough to solicit multiple offers.

And this isn’t about under-pricing.  Sure, a handful of those twenty-three offers could have been at the list price, with conditions.  But most offers in this market are from people who play to win.

Virtually every condo listed in the central core right now has a “hold-back on offers,” and most of them are selling in multiple offers.

It’s just uncanny.

I thought I had found a unicorn earlier this week.  I know it’s “an” unicorn, but that just looks weird…

A King West condo hit the market; 566 square feet, priced at $449,900, with offers any time.

No parking, no locker, and still $795/sqft.  Add in the 110 square foot balcony, and I thought this was a real opportunity.

With no holdback on offers, I thought it was a great spot to see the unit over lunch (it had hit the market around 11am), and if everything checked out, make an offer with a short irrevocable, and see if we could catch the listing agent with his pants down.

I pulled the MPAC report for the unit (it costs $5.00 and TREB should make it mandatory for every listing in the city, to show square footage to buyers and buyer agents), and as luck would have it, the MPAC “square footage report” showed the unit at 456 square feet.

456 square feet, eh?

Where did the listing agent get 566 square feet from?

Oh, gee – the 110 square foot balcony.  Let’s just add those together, and voila!

If something seems to good to be true in this market, it usually is.

At 456 square feet, this unit was actually priced at $987 per square foot.

And the irony is – a colleague remarked thereafter, “Nine-eighty-seven a square, with a balcony, a BBQ gas line, and in that location?  Hmmm, not bad!”

Not bad, at a thousand bucks a square foot.

$1,000 per square foot.  That’s such a big number, is it not?

And the crazy thing is – it’s not a rarity.

I’m looking through MLS right now…

New listing at 318 King Street East – 790 square feet for $719,000, hold-back on offers, and this unit is spectacular – it’s going to obliterate any record in the building.  This will go well over $1K/sqft.

New listing at 510 King Street East – a bachelor unit, probably 450 square feet, for $400,000, with offers reviewed on March 5th.  Could we see $1000/sqft here?

New listing at 390 Cherry Street – 600 square feet for $599K.

And on, and on, and on.

Many of you are thinking, “I thought the market was slow!  Didn’t things change last year?”

That’s a fair line of questioning, and it’s something people email me whenever I use words like “hot” to describe the Toronto real estate market.  As the theme went in last week’s blog posts, people will create their own narrative, and say things like, “Interest rates went up, and the B-20 rules came into effect.  The United States is a mess, and it’s getting consumer confidence down.  NAFTA…..the Canadian dollar…..manufacturing…….jobs……words……”

And while I could tell another dozen stories about my experiences thus far in the 2018 condo market, I want to show you what happened in the condo market last year.

More specifically, I want to show you what happened in the condo market last year, and contrast that with what happened in the housing market overall.

Take a look at the following chart.

On the left, we have the “Average GTA Sale Price,” which is the most-used metric of the Toronto market.  This includes every single sale, for every type of property.

On the right, we have the “Average Sale Price – 416 Condo,” which is only looking at condominium sales, and only in the 416:

CondoMarketHousingMarket

Some of you will choose to analyze this data at length, and I welcome your own interpretations.

The %Monthly refers to the increase/decrease in month-over-month price, and the %Yearly is obviously the same for year-over-year.  Those percentages refer back to prices not shown on the chart.

As we all know, the Toronto real estate market in the spring of 2017 was probably the hottest 4-month period on record.

Look at the month of February, where we saw the average home price appreciate 12.0% alone.

Again, there are reasons for this.

January is typically slow, without a lot of new listings, and much of the inventory is “junk” that’s held over from the previous year.  So to suggest that every property in the city was selling for 12% more in February than in January is misguided.

But taking these numbers at face-value, and comparing the overall market to that of the condo market, we can see how the condo market has risen to its current value.

First and foremost, I don’t put much stock into the month of December.  Nobody lists real estate for sale in the month of December, if they can help it.  Much of what is sold is simply the leftovers, but I included the month just so you could see how we came into 2017.

The start to 2017 was fast and furious, as noted in this space many times before.  And it was the freehold market that did most of the work, as you can see from a comparison between the overall GTA market compared to the 416 condo market.

The average home price increased 5.2% in January, but the average 416 condo price only added 1.0%.

And then in February, as mentioned above, we saw a whopping 12.0% gain in the overall GTA home price, as the 416 condo market lagged behind at 9.3%.

But this is where thing started to change.

March saw another 4.4% added to the overall market, but it was outpaced by the 416 condo market, which added 6.8%.

Then in April, when the overall market stopped on a dime around mid-month, we saw only 0.5% added to the overall market, and yet the 416 condo market kept moving – adding 5.1%.

Everything dropped thereafter, but the condo market didn’t decrease in line with the overall market average.

May saw a -6.6% drop in the GTA home price, and only -2.3% in the 416 condo market.

Those numbers were -8.8% and -2.1% respectively in June.

And then -6.4% and -3.7% respectively in July.

Then in August, as the GTA overall price dropped -1.9%, the 416 condo market actually increased by 1.4%.

Come September, when most home-buyers were back out again in full-force, the overall GTA average increased 5.6%, compared to a more modest 2.6% increase in the 416 condo market.

The finish to 2017 was somewhat similar for both numbers, after a more balanced couple of months.

For the month of December, 2017, the “Average GTA Sale Price” was up 0.62%, from December of 2016.

For the month of December, 2017, the “Average 416 Condo Sale” was up 14.1%, from December of 2016.

That, in my mind, tells the story of the current condominium market in the central core.

The entire market shot up like a cannon to start the year, but as things levelled off in the overall market, the condo market just kept going.

And as is usually the case, it’s the lowest-priced, easiest-to-acquire properties that outperform, as there is more demand.

You can see from the chart below that the average 416 condo sale is up 2.0% in January, compared to a modest increase of 0.2% for the overall GTA market.  I expect this trend to continue into February, and if I had to guess, I’d say the average 416 condo sale price will show a 4% increase, month-over-month, when the TREB numbers are released next week.

It’s worth noting that a 6.4% increase would take us back to the average price in April of 2017, which represents the “peak,” and I would expect this to be met by the end of March.  Hell, the February data might show it’s already passed.

I’ll leave you with this final thought, because I know people love when I compare Toronto to New York city.

The average price per square foot for condos and co-op apartments (they’re grouped together, unfortunately, otherwise the number would be far higher), in 2017 was $1,775 USD, or approximately $2,272 CDN, to compare to our market.

“Luxury” properties, which is basically anything being built new, averaged $2,978 per square foot in 2017, or $3,812 CDN.

I’m not suggesting that Toronto, is in any way, shape, or form, comparable to that of prime New York City.

But it sure makes for an interesting discussion…

 

-From the Toronto Real Estate Blog