Toronto September 2023 Condo Market Report

“The Plateau Of Volatility”

With September nearly behind us, we feel like it is time to shake off some of the doom and gloom from this Summer.  Doubtless, this Summer, and frankly, much of 2023 has not been kind to the broad market.  Interest rates have gone up, and with them mortgage rates. The news now is that the rates, whether further increased or not, will be held “higher” for “longer”; whatever that means.

What we do know, with some level of confidence, is that the market will inevitably need to respond to the impact of borrowing rates remaining elevated. Thus far, the market has withstood the volatility with prices remaining stable in large part due to Canadian banks’ willingness to extend amortization rates (which primarily benefits the banks).

This plateau in the market is not likely to continue over the long term. Indeed, buyers are continuing to build up capital. Over time, this will allow them to reduce the extent of debt required for their purchases, increasing their appetite for buying investment property. By the same token, some homeowners will be pressured, with time, by their increased debt obligations. Such sellers will need to sell, especially those whose rates go from the 2% range to 7%+. We have already started to see this taking place. When these two realities meet, the market will return to a more balanced level, with increased supply satisfying the ever-rising demand for housing.

To that end, we see today’s market progressively becoming more of a buyer’s market in the shorter term and our clients have been keen to take advantage of the deals on offer. However, whether you are interested in selling or buying properties, our team of knowledgeable professionals is here to help you make the decision that is right for you!

 

“New Rental Registry Gives Visibility To People’s Pay for Rent”

Ever been curious about how much your neighbours have to shell out in rent every month in Toronto?

Well, a new Ontario rental registry lets you investigate just that by exploring self-reported rental prices across Toronto in an effort to preserve affordability in the residential market.

Designed by non-profit organization, Vivre en Ville, the free registry has already amassed thousands of listed rents in virtually every neighbourhood in the city despite only being launched on Tuesday.

The open data platform is crowdsourced and allows you to browse information regarding a unit’s rent, monthly electricity charges, permission to have a pet, and other specific characteristics.

By hovering over a map of the city, you can click on or search specific addresses to analyze patterns across rent-controlled buildings versus units subject to unregulated rent increases.

“The lack of proper data about the rental situation has made it difficult to deal with the housing crisis. Here in Toronto there are huge differences in rents and practices between different landlords and buildings,” said Dr. Alan Walks, Professor of Geography, Geomatics, and Environment at the University of Toronto.

“Above-guideline rent increases have been used for very different ends — many unrelated to paying for needed maintenance — including tenant harassment, profiteering, and eviction. This rental registry will provide the valuable data we need to understand what is going on and come up with policies that address the underlying problems.”

In order to register, you are asked to provide the address of your unit, the cost of rent for a given period, the size of your unit, and an email address. You will also be asked for other information concerning the terms of your lease and demographics, but this section is completely optional.

A similar registry was launched in Quebec in the spring of 2022, with the organization seeking to increase transparency in the residential market and tackle the unprecedented surge in rent prices across Ontario.

“Major Redevelopment Of Toronto Mall Closer To Reality!”

Toronto malls once dominated the local retail scene, but are facing unprecedented challenges amid the rise of online shopping and same-day delivery.

Once-mighty establishments like Fairview Mall are now dealing with the reality of declining traffic and soaring land values, leading to a rethink of how these shopping centres utilize their vast expanses of land.

Cadillac Fairview (CF) and development partner SHAPE have been refining plans to build a new community surrounding the mall that they hope will bring a critical mass of new residents to support the shopping centre generations into the future.

A development application was submitted to Toronto city planners back in April 2022, outlining plans to surround CF Fairview Mall with a new community that will replace existing surface parking, driveways, and an above-ground parking garage, bringing thousands of residential units in its place.

Following over a year of public consultation and feedback from city planners, a revised plan was tabled in early September, incorporating several changes to refine the Hariri Pontarini Architects-designed redevelopment plan.

The initial 2022 proposal detailed the initial phase in what will ultimately be a four-phase redevelopment bringing approximately 4,700 residential units in 310,000 square metres of residential, and up to 40,000 square metres of commercial and office space to the site.

That plan called for rental and condo towers proposed at heights of 58, 48, and 38 storeys, though following feedback from City staff, both of the taller towers in the proposed first phase have been whittled down in the updated Sept. 2023 submission, which proposes towers of 52, 45, and 38 storeys.

The revised plan for the first phase comes with reductions in the total floor area (dropping by 7,622 square metres down to 97,209 square metres), and residential space (reduced by 7,345 square metres to a new total of 96,947 square metres). The retail component has been slashed in half, dropping from 539 square metres down to 262 square metres.

All of these changes impact the loadout of the complex, including a reduction in the proposed unit count from 1,416 to 1,323, and the axing of 172 parking spaces for a new total of 1,062. The bicycle parking component has also been reduced to reflect the drop in units, losing 60 spaces for a new plan of 1,009.

Several smaller refinements have been incorporated based on feedback from City staff that aim to enhance the community’s interaction with its surroundings.

One notable revision that characterizes the type of smaller changes being implemented is the addition of an architectural canopy over a forecourt framing two of the towers, which planners state will “create an element of architectural interest, and define the relationship between the building.”

The City’s feedback places much of its focus on the buildings’ ground realm, hoping to improve the towers’ integration with the three new public parks totalling 7,840 square metres of parkland dedication, and approximately 8,780 square metres of private open space planned across the site.

 

SALES COMMENTARY

Sales on TREEB have continued to weaken. For August there were 5,294 sales. This was 5.2% lower than August of last year and even with July.

Usually, sales in August are higher than July. So far prices have remained steady, but we believe that is about to change. A lack of new listings kept prices from falling. But in August, new listings were 16.2% higher than August of last year and the current inventory of active listings are 16.5% higher than a year ago. This represents almost 3 months of sales and is a strong indicator of a buyers’ market.

The Downtown and Humber Bay condo markets are even in worse shape. From August of 2022 to August of 2023, new listings are 40.7% higher and active listings are 46.2% higher.

Based on the increase in listings, expect overall prices to be 3% lower this fall. For the condo market prices will be down more. Expect price declines of 5-10%. This does not even consider the Assignment Market (people trying to sell their pre-con condos before registration).

Initially people believed that the Bank of Canada 5% rate would be over by the end of 2023. Our guess is that this 5% rate will last into the end of 2024. This poses problems for many mortgage borrowers. So, what is the solution?

                                                          

 

REDUCE THE STRESS TEST

The Government introduced a Stress Test when mortgage rates were under 3%.  People with new mortgages had to qualify at their new mortgage rate plus 2% or 5.25% – whichever was higher. With today’s mortgage rates in the 6% range, that means the qualification is now 8+%. Owners cannot afford to move even when they want to downsize because they will not qualify for a new mortgage at the Stress Test rate. We need to encourage more buyers and sellers to enter the market.

Right now, many people who want to buy are being forced into the renters’ market which makes this market even tighter. Let’s reduce the Stress Test to the five-year fixed mortgage rate. This gives buyers five years to pay down their mortgage and to see their income increase which should make it easier for them to qualify and renew.

This Chart plots the Sales-To-New Listing Ratio by Month for the first half of 2023. A Balanced Market is when the Sales-To-New Listings Ratio is between 40%-60%. Below 40% indicates a Buyers’ Market and above 60% indicates a Sellers’ market.

Graph Source: Toronto Regional Real Estate Board.

 

RENTAL COMMENTARY

In August over 2500 condos were leased in the Downtown and Harbour Bay markets. This was down from July when 2900 were leased. The number of condos still available were just over 1800 units. The rental market is still tight, but it appears that we have reached the peak.

We are still experiencing multiple offers for many rentals. The initial list price to sale/lease price is still at 101%. While immigrants and student rentals are the primary causes for this tightness, another factor is that some people who sell their home cannot afford to buy another, because they do not qualify for a new mortgage under the Stress Test. They are then forced into the rental market as well.

Rental prices remained unchanged from last month. The table below represents average rents by bedroom type for August. Extras for parking ($300) and a second bathroom ($500) per month need to be considered.

SALES ACTIVITY IN THE STARTER CONDO MARKET

We looked at sales of small condos in the Humber Bay and Downtown Markets. The price range was from $300,000 to $500,000. The target market was first time buyers. (See Graph below) In both months, listings under $500,000 sold for above that number and these have impacted the average and median prices.

In comparison to the 36 sales in August ‘23, 181 people rented an apartment in the same market. For a studio they paid $2300 per month on average. If they purchased a $500,000 condo with 5% down; their monthly expenses for a mortgage, condo fees, and property taxes would be around $3300. About $700 of that amount would be the repayment of principal, so even accounting for that, buying is still more expensive by $300 a month. But if rates were to drop to 4% then buying would be at a break-even proposition.

 
 
 
 

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