Tara Perkins – The Globe and Mail

The large number of condos being built in Toronto is now curbing the rise in both prices and rents.

Resale prices for high-rise units in the country’s most populous city are flattening out after years of appreciation, and the degree to which monthly rents have been rising has begun to slow.

The latest figures suggest that the record amount of supply that is coming on stream, as well as the impact of recent mortgage insurance rule changes, is now shifting the balance between sellers and buyers as well as owners and tenants.

For the first time in this latest quarter the median price of a resale condo in the Greater Toronto Area showed no significant year-over-year appreciation. Prices of pre-construction condos in the city have already been dropping, but this is the first time that prices of resale condos over the MLS system have not increased meaningfully since the recession.

The average resale price was $334,204 in the third quarter, flat compared with the average price of $332,969 in the same quarter a year ago.

Comment: Funny, had prices gone down, they would have given the percentage. That is actually an increase of 1%, give or take. Not quite flat… but not quite the same as the 10%+ we saw towards the beginning of the year. Time for a moderation I say!

Resale condo prices slipped into negative territory around the height of the financial crisis in early 2009, but had been rising on a year-over-year basis since then. Price growth stretched up toward nearly 20% in early 2010, and had been bouncing around in a range between about 2% and 10% since.

The softening comes as the market adjusts to a new abundance of available units. There were 488 condo sales over the MLS system between Oct. 1 and Oct. 14, the Toronto Real Estate Board said Tuesday. That’s down 18% from the same period last year. The average price for the condos that sold this month was $356,312, down 4% from a year ago.

Comment: Interesting that every measure is dropping. Fewer listings, fewer sales, less price increases, less rental increases and even fewer new condo sales, launches and completions. The whole thing is slowing down. Which is good, it was getting just a LITTLE out of hand!

Meanwhile, the number of condos that were rented by way of the MLS system rose three% in the third quarter to 5,241. But the number of condos listed for rent in the same period rose 18% to 8,845.

Average rents rose by 3.4% for one-bedroom units, to $1,605, and 2.2% for two-bedroom units, to $2,097. But those price increases were generally not as strong as the ones the market had seen in the past four quarters.

Comment: Yet there are still bidding wars for rentals. I just had multiple offers on a $3,300/month unit!

“Prospective renters had more units to choose from, which led to less upward pressure on rents,” said Jason Mercer, senior manager of market analysis at the Toronto Real Estate Board.

One- and two-bedroom condos accounted for 95% of the rental transactions the board saw in the third quarter. The less-abundant three-bedroom units saw their average rent rise 12.7% to $2,660.

Industry experts say that the demand for three-bedroom condos is outpacing the supply. Data from Century 21 Regal Realty suggests that just 3.2% of all of the pre-construction units under development in buildings that are still marketing are three-bedrooms, while more than 90% are one- and two-bedroom.

Comment: No, supply is actually ahead of demand for larger units. Sure, only 3.2% of all new units have 3-bedrooms, but most developers cannot sell them. Ask anyone, the big ones are sitting. So even if there are some available, people tend not to want them. Why would you pay $700,000 for a 3-bedroom condo that might be 1,200sf when you can buy a 3-bedroom house in Leslieville for $500-600,000 and get more room, a finished basement, backyard and more. With no $800/month condo fee. That is why big condos don’t sell.

When developers talk about the reasons that they believe Toronto’s condo market can handle the current construction, they often cite restrictions on further expansion of the suburbs due to the Greenbelt. But it’s not clear that condos are a viable alternative to suburban living for most families, due to the lack of larger units.

Comment: What I said.

Developers tend to favour smaller units because they traditionally have sold faster, are easier for investors to rent, and are subject to less taxes.

Comment: The main buyers of condos are first time buyers, singles and investors. They mainly want small affordable condos. And developers tend to build what people buy, duh…

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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