Faced with no more long weekends until the December holidays, it’s time to roll up the sleeves and seize the opportunities of this fall real estate season. Across most communities and price points, it’s clear that we are experiencing a nice bounce and are likely to finish the year on a high note.
Over the last few weeks, 40-50% of condo sales have been transacting at or above the asking price, indicating that buyers are holding back from getting involved in bidding wars, while the condo market remains strong overall. To get a stronger picture of real estate this fall and into the new year, we spoke with the Canadian Real Estate Association‘s Chief Economist, Gregory Klump.
Fall 2018 Toronto Condo Market Update*
September price increases suggest a smart time to sell
Toronto condo market prices go up as sellers wait and see
September 2018 saw an average condo sold price increase of 6.1% over August, reaching a high of $755/PSF in the City of Toronto. With fewer sales in September month-over-month, the sale price increase is likely due to tightened inventory in the city. It’s no secret that the rate at which Toronto is building new housing options is far below demand levels in the city, but “sitting-duck” sellers may also be playing a part in September’s price increase.
Potential sellers who are choosing to wait and see what will happen in the Toronto real estate market are contributing to the tightened inventory conditions by holding back their property from the market. This isn’t a problem for sellers who are simply looking to sell their property and cash out. They are waiting to seize the best sale price they can get, and we understand that.
The problem is for sellers who want to sell and then buy a new property. Sellers who are waiting to sell, but then hoping to buy after, are doing themselves a disservice, because they will be buying back into a higher priced market. In these market conditions, if you want to sell your condo and then buy, you should do it sooner than later.
According to Mr. Klump, “an alternative to selling in this marketplace is renovation. If you are looking to sell and then buy because of features you desire, it may be more affordable to renovate your current home to include those features.”
Toronto condo market is affordable amidst price increases
Though there were fewer condo sales in September and fewer active listings this fall compared to the summer condo market update, the Canadian condo market remains within the margins of affordability. In fact, the condo market might be the only area of Canadian real estate that is currently affordable.
According to Better Dwelling, “The RBC Economics Affordability Index approached record highs in Q2 2018. The index, which tracks how expensive it is to buy a home, hasn’t been this high since the 1990 Canadian real estate bubble.” Except for the condo market, that is. The Affordability Index shows the percentage of total household income, before tax, that is needed to carry a conventional mortgage in Canada. While the Canadian real estate market is the least affordable since 1990, “condo apartments reached 42.8% in Q2 2018, under the 1990 high of 49.8%,” Better Dwelling reports.
However, Gregory Klump reminds us to be wary of drawing big conclusions when talking about the “Canadian” real estate market, because it doesn’t really exist. When discussing price trends among buyers and sellers, all real estate is local. In Toronto, we are seeing local real estate markets that are mostly balanced, with pockets of seller’s markets. A major price correction is unlikely to occur in such market conditions. In a buyer’s market, however, an abundance of inventory can sometimes bring down prices.
Average Toronto condo for sale asking price
Average Toronto condo rental price
A return to higher sales activity in October
Historically speaking, the fall real estate season spikes in October and plateaus in November. Last year, however, condo sales in Toronto increased in October and then continued to climb in November. Last year (2017) was an anomaly for Toronto real estate in many ways, and with increased condo listings in the last week, we will likely see a boost in the sale of Toronto condos this month and a return to more normative market behaviour for the remainder of the fall season. The significant price increase of September over August may be the catalyst for wait and see sellers to list their condo or house for sale this fall season.
As for the rental market, the average price for a 1-bedroom condo apartment is above $2,000/month and it’s unlikely to decrease anytime soon. A recent Toronto Star article quoted an Urbanation study that suggests rental price increases may slowdown in 2019, but the limited supply of rental inventory in the city mixed with the pressure on landlords from Ontario’s new rent control measures will keep the rental market in a hot condition.
*Data sourced via Condos.ca Market Report as of October 10, 2018
Gregory Klump is the Chief Economist with CREA.