Toronto

Toronto Condo Prices Rip To A New All-Time High

Toronto Condo Prices Rip To A New All-Time High

Higher interest rates and a stress? No match for Toronto condo buyers, apparently. Toronto Real Estate Board (TREB) numbers show condo prices hit a new all-time high in March. The price peak was hit, as sales dropped and inventory levels continued to rise.

Toronto Condo Prices Rise Over 14%

The benchmark price of a condo apartment ripped higher in March. TREB reported the benchmark, a.k.a. the price of a typical condo, reached $488,000, a 14.11% increase compared to last year. The City of Toronto saw the benchmark reach $513,700, a 15.94% increase compared to last year. This brings the benchmark price to a new all-time high for Greater Toronto.

Source: CREA, Better Dwelling.

The key takeaway here is price growth appears to be moderating very quickly. The 14.5% increase is still huge, and about 3x as large as New York City, which is currently worried about a bubble as well. However, the annual rate of growth is 5 points lower than it was the month before. The rapid tapering is worth noting, since this is the fastest taper observed since at least 2005.

Source: CREA, Better Dwelling.

Toronto Condos See Median Price Rise Over 7%

The median price is also posting big gains. TREB reported a median sale price of $485,000, a 7.53% increase compared to last year. The City of Toronto had a median sale price of $518,000, a 7.46% increase compared to last year. Be warned that median sale prices do not account for a change in sales mix. That is, luxury and size biases are not accounted for. However, the measure responds faster, and is more easily understood than the benchmark. Median sale prices are more commonly used in international markets, and are a popular indicator amongst foreign buyers.

Source: CREA, Better Dwelling.

The average sale price is also up by a lot, just not nearly as much as the benchmark. TREB reported an average sale price of $551,003, a 6.1% increase from last year. The City of Toronto saw an average price of $590,184, a 7.1% increase from last year. The average sale price isn’t useful for tell you how much you’ll pay for a detached home, but is a better indicator of dollar flow.

Source: CREA, Better Dwelling.

Greater Toronto Real Estate Sales Are Down Over 32%

Condo sales are declining across Greater Toronto. TREB reported 2,183 sales, a 32.7% decline compared to last year. The City of Toronto saw 1,573 of those sales, a 32% decline compared to last year. Remember, declining sales don’t mean anything unless inventory is rising… which it is.

Source: TREB, Better Dwelling.

Greater Toronto Condo Inventory Is Up Over 56%

New Greater Toronto condo listings are down compared to last year. TREB reported 3,305 new condo listings in March, down 16.98% compared to last year. The City of Toronto saw 2,225 new listings, down 22.2% compared to last year. Despite the decline of new listings, inventory is still moving higher.

Active listings, which are the total listing available, is up significantly. TREB reported 3,012 active condo listings at the end of March, a 56.71% increase compared to last year. The City of Toronto saw 1,854 of those listings, up 34% compared to last year. The significant decline in sales over the past few months, is causing inventory levels to rise closer to historic levels. However, sales aren’t quite getting there.

Source: TREB, Better Dwelling.

The decline in sales are being largely attributed to the new stress test, rolled out January 1, 2018. This would have an immediate impact on sales, but not on the benchmark price. Organizations like the Bank of Canada expect credit changes to take 6 to 12 months to show up in the market. Technically speaking, you shouldn’t expect B-20 Guidelines to impact the market yet… if at all.

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59 Comments

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  • Reply
    Taki 8 months ago

    As long as Toronto continues to not build rentals, the opportunity shifts to those that can afford condos. Condo prices will continue to rise for as long as landlords can raise capital. Don’t expect that to end any time soon.

  • Reply
    Michael 8 months ago

    Let me get this straight. Half of condo investors lose money every month, but they’re still piling in? Why do people not realize, if your landlord is paying more than a $1,000 every month to carry you as a tenant, you’re practically saving $1,000 every month that you can invest sustainably, without leverage.

    • Reply
      vnm 8 months ago

      Historian Barbara Tuchman had an expression for this kind of delusional human behaviour:
      The March of Folly
      We should be more worried if this weren’t happening, it demonstrates that nature is still in control. As with climate change.

      • Reply
        Alistair McLaughlin 8 months ago

        Tuchman’s The Guns of August remains the best book on the start of the First World War, fifty years after it was written. She was terrific.

        • Reply
          vnm 8 months ago

          Thanks, been meaning to read that one!
          Her A Distant Mirror, about the Middle Ages, with another title that pretty much says it all is mind blowing and increasingly pertinent.

    • Reply
      Everyone is an Expert 8 months ago

      Michael,

      “you’re practically saving $1,000 every month that you can invest sustainably, without leverage”

      the problem is there is no other investment that exists that “ONLY” goes up forever which is Toronto Real Estate. problem is that you cannot do it without leverage.

      • Reply
        Alistair McLaughlin 8 months ago

        Leverage is not to your advantage when the market moves against you. Many GTA “investors” will find this out the hard way.

        • Reply
          Everyone is an Expert 8 months ago

          Alistair McLaughlin,

          not sure if you caught my sarcasim when I say real estate “ONLY goes up forever”

          • Alistair McLaughlin 8 months ago

            I did see it, but for some reason it did not register. Point taken. My bad.

    • Reply
      Al Daimee 8 months ago

      The best answer I can offer as to why condo investors keep a condo with negative cash flow:

      Some condo investors use the strategy of negative cash flow as a way of writing down their income to reduce income taxes paid. Meanwhile, they are using the free cash flow for other investments within RRSPs (a further tax reduction) or TFSAs (for non-taxable gains) or pre-construction condos to grow or cycle/update their property portfolio. This typically applies to those who have a high income and plenty of excess cash for investing.

      Negative cash flow is tolerable with these investors because of the low interest rate environment combined with the fact that there has been appreciation in the value of that leveraged investment. They look at it as “$12K-$15K invested per year for an investment growth of $30K or more per year” (the approximate average annual price gain in the past 10 years for a 1 bed downtown condo). Don’t forget that the 25%-35% downpayment they put in to acquire that condo comes back to them 100%. The extra costs for closing costs, legal fees, maintenance, property taxes, and eventually, selling fees are all write-offs against income/capital gains. If the long-term math didn’t make sense, these investors would not be buying. The fact that new pre-con condos are still selling well is a barometer of confidence in Toronto (and Vancouver, I presume) for the long term. These are cities gaining momentum on the international scale. Whenever I travel (which is often) and say I am from Canada, these are the 2 cities (plus Montreal) that people abroad associate with Canada.

      The time horizon of these investors is very long term (10+ years) of ownership, so they are not concerned with short-term changes in the market. These investors will ride out the downturns because they do not NEED to sell into a bad market and will continue to be a landlord. They may adjust their distribution of cash flow when the time calls for it in a higher interest rate market.

      Condo speculators who are using their last dollars in an investment property to flip short term are not typically found in abundance, because they fear losing money far too much to jump into the market today. The future is uncertain and yet over half of new condo units launched are being bought by investors. The reason? They see Toronto’s long-term potential due to the fundamentals driving growth in the city and know that if there was a correction in the market that it will eventually rebound. In the meantime, the flight to renting will drive up rental prices. The “loss” is only realized when there is panic selling into that loss.

      That is the psyche of this type of real estate investor and represents a larger portion of the market than many would conceive.

      • Reply
        Wei 8 months ago

        Al. you are 100% correct. this is the mindset of many many investors.

        • Reply
          Alistair McLaughlin 8 months ago

          And that mindset is precisely why things are about to go to $hit, just like they did in the detached market a year ago.

      • Reply
        Meena 8 months ago

        Al, what are these great long term fundamentals that you talk about? We are in the mess we’re in because the government has no idea how to stimulate sustainable growth and hasn’t since 2008. Canadians invest in real estate because there’s nothing else in this economy. And THAT is a really worrying trend.

      • Reply
        xelan 8 months ago

        Al Daimee, you describe reasonable investors, however the numbers don’t support it.
        Not sure if you’ve seen recent report from Urbanation & CIBC regarding condo sales analysis so I will provide you just one finding from that report:

        * 30% of all investors who bought condos around 2015 (!) and closed in 2017 are paying 6%+ interest rate on their mortgage. Does it looks like reasonable investment to you when you can’t get financing from the bank for your purchase? Now, in 2018 it will be way worse since interest rate is higher and new stress test implemented.

        To me it looks exactly like using their last dollars in an investment property to get rich quick by accelerated rise in the equity in spite of the negative cash flow.

        10 years investment horizon is not so long either because it took more than 10 years for
        Toronto market to recover last time and it also took about 10 years for US market to recover so you may end up with 10 years of negative cash flow and 0% equity growth in 10 years.

    • Reply
      Wei 8 months ago

      most renters can barely afford the rent. where is that extra $1000 coming from?

      • Reply
        Alistair McLaughlin 8 months ago

        The thousand dollar savings is making a direct comparison between renting and buying. If they can’t afford to rent, they sure as hell can’t afford to buy, so the comparison is moot.

        Also, if they can barely afford the rent, then the revenue from rental condos doesn’t sound all that reliable. Tenants who can barely pay the rent would end up stiffing their landlords quite often, leading to evictions and months with no rent, no?

        So which is it? Are condos a good investment with solid income potential? Or are they risky, cash-flow negative investments whose cash flow is dependent on increasingly impoverished and flakey tenants? You can’t have it both ways.

  • Reply
    Bouncing Cat 8 months ago

    Isn’t this exactly what happened in the last bubble leading up to the collapse?
    As with low unemployed being a precursor of a recession, it’s just further reinforcement that the end is nigh.

  • Reply
    Wei 8 months ago

    I am part of a syndicate of investors who own 12 condos downtown. we have a management company that takes care of the properties. Our equity is up $2.2M , but after expenses and fees we barely make $500 per condo/month. Some condos are high cash flow positive and some others are actually negative. in 5 years we are seriously up but now we are putting plan together to sell. Ofcourse we have disagreements within the group of when to sell and which properties – some are more greedy than others but we all agree that we made good decision.

    • Reply
      xelan 8 months ago

      Congrats on your investment success. Condos are still doing great so you may have more time on hand but it’s almost impossible to predict the peak so if you can lock in some profit now it will definitely be smart.

  • Reply
    Alistair McLaughlin 8 months ago

    So a dwindling number of idiots with more access to credit than brains continues to drive prices higher. We’re seeing a classic blow-off top just like we saw in the detached market last year.

  • Reply
    Russ 8 months ago

    Condo markets are speculative. What is the percentage of condos that are classified as principal residence ? I bet the percentage is not high in Toronto. I heard report of speculative investors owning a few units. When will come the time for a mad scramble to sell those when interest rate start rising again. May be the municipalities need to introduce a speculative tax for that. Let see what happen after.

    • Reply
      Mmr 8 months ago

      More tax not going to help. Less tax better it is. Can’t wait for Doug to scrap the taxes. Time is up for liberals.

  • Reply
    Everyone is an Expert 8 months ago

    This is just me, but what does not make sense to me is that in some areas in Toronto, I see houses for listed for about 800-900k. meanwhile I can see some 2 bedroom condos in the same area at like 750k.
    now when we start talking about negative cashflow for renting out these condos, not to mention some of these the condo fees are retarded (particularly the ones that start at $600- to some that are$1000 a month for fuck sakes). what gives these units so much value compared to these homes.

    Either A the homes will go back up, or B the condos have surged past its peak. Or I am not getting something here?

    • Reply
      Mmr 8 months ago

      Which area? Can you be more specific with back up and right references? Plus listing price don’t mean selling price either. Area like downtown core detached are 2 million plus like in annex those area condo goes for 800k two bed which make sense. Not sure what area you are talking about.

    • Reply
      Joe 8 months ago

      You are likely seeing underlisting by real estate agents. There have been some $999k listed detached around Yonge/Eglinton over the last few months, but that is just an underlisting to get people in the door and they end up going for $1.5-1.7M when you check HouseSigma.

    • Reply
      xelan 8 months ago

      This is a very valid observation and I noticed that too. I compared not listings but actual sales statistics between detached and townhouses. Couple of months ago the statistics was like this:
      2bd house $876k
      2bd townhouse $804k

      It makes very little sense. The best explanation I have that people sell their expensive houses and buy condos instead. This way they still have a place to live in and they put a huge profit in their pocket which will stay with them no matter how housing market will decline.

      I read that same thing is happening in Vancouver since last year and it helps to explain why detached prices suddenly declined but condos price growth accelerated.

      • Reply
        Everyone Is An Expert 8 months ago

        Xelan,

        So what you are saying is that I am not crazy to think this is happening and its not just a cheaper price bait to promote a bidding war. I been monitoring prices now and then for the last 3years and its only until recently I seen the prices all over place as if the market is confused and just comming up with the strangest reasons to justify why things are they way they are. I can definately feel something is changing whether good or bad, just depends what horse you have in this race.

        the next question that comes to mind is reading your explaination:
        “The best explanation I have that people sell their expensive houses and buy condos instead”

        to me, unless they are actually downsizing from a 2-3+ bedroom house to a 1 bedroom condo, or moving out of Toronto to live in Hamilton or London ontario, it wouldnt make sense to take profits on your gains to buy a new property that appreciated tremendously, kinda defeats the purpose of cashing in.

  • Reply
    Grizzly Gus 8 months ago

    If they actually have enough cash to buy the place out right then maybe your rambling above will hold true.

    Unfortunately, from the numbers we saw from Urbanation and CIBC we know that most of them not only have debt, but a larger portion of them are paying 6%+ (which means they are not prime borrows……. no money)

    If we 20%-30% price correction in condo prices, what bank or lender is going to refi someone who is not only underwater but is also losing $1000 a month? Maybe if the person has a crazy income, however that individual would not be paying 6%+ in rates…..

    “They look at it as “$12K-$15K invested per year for an investment growth of $30K or more per year” ………..”Will hold for 10+ years if required”

    So if prices drop and it takes ten years to get back into the positive. You would lose 120k-150k no?

    Once investors start to look at it this way its game over

    • Reply
      Grizzly Gus 8 months ago

      Supposed to be a reply to Al “Real Estate Math” Daimee

    • Reply
      xelan 8 months ago

      Lol I replied to Al Daimee after you but since you commend was way below I haven’t seen it until now. I’m surprised how similar our comments came out at the end.

  • Reply
    vnm 8 months ago

    The idea that everyone is piling into condos because houses are now too expensive is ludicrous.
    Half of Toronto earns between $18,000 and $30,000.
    The upper earners in the category might, just might, be able to manage the condo fees and utilities, but a mortgage, that’s a big no-con-do.
    None of them can afford to rent a 1-bedroom at current prices. And only some barely at half.
    We’ve been shaking this pop can for more than a decade, and
    when it blows and the fizz runs out, omg.

    https://www.thestar.com/news/gta/2017/11/01/toronto-region-becoming-more-divided-along-income-lines.html

    • Reply
      Mmr 8 months ago

      Income in Vancouver is even less. Still piece is almost 50 percent up then Toronto. Nothing make sense any more. Either it’s all own by foreign ppl or no one report right income and lot of black money in real estate.

      • Reply
        Grizzly Gus 8 months ago

        A couple months after Vancouver launched its first foreign buyers tax, they followed it up with some sort of first time buyers interest free loan program to help first time buyers get into the market. Don’t remember the exact terms but it was somethiing like the province will give you 50k, interest free and you dont have to make any payments on this for 5 years. Condo market turned around almost instantly.

        I am sure we are going to hear something like this from Wynn or Ford very soon. Why not let the older generations have one last chance to pass the bag to younger generations? I think it will be too late however to bring the punch bowl back to Ontario

        • Reply
          Jay 8 months ago

          Grizz, the first time buyers interest free loan program was recently axed due to ‘low participation’ from young people. I believe the number was floating around 3000 people signed up.

          https://globalnews.ca/news/4066987/bc-homebuyer-loan-program-shut-down/

          I honestly believe Condo prices are sustained in Vancouver due to the short term rental industry like airbnb. Real estate geniuses can get away with paying outrageous prices for these one bedroom condo’s because Vancouver is a literal tourist hub. Last year broke a record for most people visiting the city ever. With the new rules implemented by the City of Vancouver today about AirBNB (who they’re partnering with) with $1000 fines per day if they do not register, things are going to get really messy, really quick. The new rules also imply you cannot airbnb a property that is NOT your primary residence.

          In my building alone (downtown core), I saw active listings that are usually used for long term rentals. For the past 2 years the building has been a revolving door of tourists, with owners making $4-5k a month on short term rentals. Those days are over.

          my2cents

          • Jay 8 months ago

            I missed a word.
            In my building alone for AirBNB, I saw TWENTY active listings that are usually used for long term rentals.

          • Grizzly Gus 8 months ago

            Missed that, thanks Jay.

          • xelan 8 months ago

            If it would be AirBnB or other heavy investment activities the ownership rate would drop significantly. Is it the case there?
            If ownership rates are holding up then looks like locals can afford those condos as well somehow.
            Definitely explanation can’t be as simple as AirBNB, there should be more than that.
            I would believe more in a theory that people are selling their $4M houses and buy 5 condos instead which explains both detach segment decline and condo segment growth. But again, ownership ratio should be dropping here as well since 4 of those condos will be investment properties.

          • Jay 8 months ago

            Xelan,

            Home ownership rate in Vancouver dropped from 65.5% (2011) to 63.6% (2016 statscan).

            Additionally, Vancouver’s vacancy rates sit at 0.9% (Oct 2017). To give you a comparison, Seattle sits at 4% vacancy for the same period.

            So maybe there’s some weight behind my theory after all. Can’t wait to see how it reacts for the next census in 2021. Metro vancouver does have a stats booklet per year, but I honestly can’t make heads or tails from it.

            http://www.metrovancouver.org/services/regional-planning/PlanningPublications/MV_Housing_Data_Book.pdf

          • Xelan 8 months ago

            Thanks for the stats on vacancy rates.
            So it’s definitely some heavy investment activity going on there which pushes local residents out of the market.
            I’m not going to argue with you since I don’t know what’s going on there. I think it’s a combination of factors including AirBNB

          • Xelan 8 months ago

            Thanks for the link, Jay.
            There are some interesting stats such as:
            * only 22% of all Vancouver sales are considered as affordable for local population
            * homeless rates increased significantly lately and 10% of all Vancouver population is on a verge of homelessness
            * less than 50% of all rental units located in purposely built rentals and (the other half belongs to private landlords)
            * only 41% of those luxury SFDs are owner occupied
            * rent is rising faster than income which is unsustainable

          • Tommy 8 months ago

            Similar AirBNB rules hit Toronto on June 1st. Could result in a huge release of rental supply.

        • Reply
          vnm 8 months ago

          Mathematicians have been trying to develop models to help economists understand the forces at work.
          Chaos theory has only been around a few decades … as you can see from the linked example, it’s complex and counterintuitive.
          Better Dwelling ran an article a while back which suggested that a new class of investors courtesy of low interest rate are almost certainly behind this mess, not supply and demand.
          What this clearly shows is that speculative demand can result in the bubbles and economic chaos we’re experiencing.
          Films of the Tacoma Narrows suspension bridge blowing apart with just a moderate wind, along with what we’re seeing in the city, if one cares to look, is a perfect example of chaos dynamics at work.
          The only certain way to kibosh this crap is for society to recognize that housing is a basic utility and out of bounds to profiteers.
          http://citeseerx.ist.psu.edu/viewdoc/download;jsessionid=556553F7FC3B6D1CBCD1F94842D532EB?doi=10.1.1.639.8058&rep=rep1&type=pdf

          • vnm 8 months ago

            It illustrates that speculation as opposed to fundamentals like supply and demand can indeed explain the bubble, and can give us insight into how the chaos might be resolved.
            It may surprise you to hear that buildings are designed based on engineering models, not piling bricks higher and higher, and see how far you get.
            You do your job, have enough respect for scientists to let them do theirs.

          • vnm 8 months ago

            Mmr, well you’re absolutely right about that, where does all the money come from? It sure isn’t being earned locally, Toronto isn’t even in the top 20 cities in Canada in terms of reported income, it’s actually a relatively poor city by that measure, so it must be coming from somewhere else and/or not declared.

  • Reply
    Yeah Right 8 months ago

    Laughable they may be, but a fool and his money are soon parted.

  • Reply
    Asterix1 8 months ago

    My wife and I are selling our condo (downtown waterfront). We bought it 8 years ago.

    This IS the time for us to sell. This condo bubble is at maximum stupidity!

    Will become renters for about 1-1.5 years, then buy a detached house.

    • Reply
      Xelan 8 months ago

      Congrats. Only the first half who cashes out early gets the profit from increased equity, the other half will have to pay for that. That’s how all bubbles work.

      Like bitcoin now – half people is either sold at a loss after January in order to finance other people’s profits or still sitting on negative returns and hoping that it will grow back to 20k. It may or it may drop further, time will tell.

  • Reply
    Joe 8 months ago

    aaaaaaaaaand TD just dropped their variable mortgage rate by 10 basis points due to slumping mortgage sales

  • Reply
    question guy 8 months ago

    basic supply and demand says this will crash back down… more listings and fewer transactions does not mean an increase in prices.

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