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Ralph Fox's Toronto Real Estate Newsletter August 2013

Ralph Fox's Toronto Real Estate Newsletter August 2013

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Fox aug news 1 Fox aug news 1 Document Transcript

  • Third Highest July On Record The underlying fundamentals driving the Toronto Real Estate Market continue to remain strong with market growth outpacing my January 2013 outlook predictions. The Toronto Real Estate Board, noted that last month was the 3rd highest July on record and pointed to an 8% year-over-year increase in the average selling price, to $513,246. Months of inventory for low-rise homes remains near record lows, suggesting that sellers’ market conditions will remain in place in the second half of 2013. While condo apartment resales were not as robust in the first half of 2013, the average condominium apartment price was also up by more than the rate of inflation on an annual basis = up 3.4% from a year ago. While Sales volumes year over year are down slightly, average prices are rising, now at 5% per year. Average days to sell a property is now just 24 days, active listing inventory is down 8% and rental vacancy is at near zero levels. Like it or not these are all classic indicators of being entrenched deeply in a sellers market. If one thing is clear it is that the fictional doomsday theories of a Toronto Real Estate Correction are NOT going to happen any time soon. Period. End of story. The “ Bubble heads “ as I affectionately like to refer to them will have to live yet again to fight another day. Perhaps they would have a better chance of success trying to spot the Loch Ness Monster, or figuring out who killed JFK. The sad part of course is the number of people who have been sitting on the sidelines paralyzed with fear who are now that much closer to being priced out of the detached and semi detached housing market. Hoping that the market will correct itself because prices are “ high “ is not enough.
  • Affordability In major cities like New York, luxury properties are now hitting the $8,000 per square foot (!) mark making $600 per square foot or $1000 for luxury residences in Toronto seem like a bargain. Despite the price increases experienced in the Toronto market over the last decade recent statistics put out by the Toronto Real Estate Board shows affordability overall remaining well within 35 year norms. The U.S. Federal Reserve has stated that interest rates will be untouched at essentially 0% for a long time, likely past 2015. It is now commonly thought that very low rates could extend into the next decade. From a global perspective Canada continues to have the strongest economy in the G8. As the US economy continues to rebound, the Canadian economy undoubtedly only stands to benefit. The Boom No One is Talking About Is Quietly raging on….. Toronto is currently experiencing the biggest high rise office boom in last 20 years. The explosive demand for downtown office space has pushed vacancy rates to 4.5% (historical average has been 9%),the tightest in recent history. Additionally, suburban vacancy rates are up 8.9%! 4.5 million square feet of office space has been built since 2009. The second boom of 4 million square feet will be completed between 2014-2016. The major driver of this expansion is directly related to young buyers moving downtown and wanting to live close to where they work and play. Top companies looking to attract the best and brightest are reacting accordingly and are opening offices all over the downtown core. In essence the low rental vacancy in the condo market is feeding into the office market , which in turn is boosting demand of the downtown housing market. It’s a powerful cycle that no one talks about with one feeding directly into the other.
  • Future Condo Inventory Pipeline A recent report put out by the CMHC — largely centered on the Toronto condo market — puts the number of new units being built at roughly the same level as the number of new households in need of a roof over their heads. The number of new starts is “closer to its historical average and is in-line with estimates of household formation,” according to Mathieu Laberge, deputy chief economist at CMHC. Historically speaking the Toronto Market since 2000 has only been able, on average, to complete 15,000 units per year. While there are some concerns with the amount of units in the pipeline there are physical and financial limitations as to what the city can produce. CMHC predicts it is going to be more of the status quo. A report from CIBC deputy chief economist Benjamin Tal suggests credit problems may have a major impact on the housing market in the greater Toronto area. The economist suggests Toronto condo developers are running out of credit and the $2-billion to $3-billion shortfall could mean serious delays in construction as a result “You are going to see major, major delays,” said Mr. Tal. Peter Munk In a contrarian move to the statements of Finance Minister Jim Flaherty regarding concerns over Toronto’s condo market overheating, Peter Monk (85-year-old founder and chairman of Barrick Gold Corp. and former head of real estate giant Trizec Properties which was sold to Brookfield Properties Corp. in 2006 for more than $5-billion) is now spending a significant portion of his personal wealth on financing condo projects in Toronto. Why? Because he believes in Toronto’s future. “Look at Beijing, look at all the money. I’ve got friends who have got kids there, tremendous job opportunities, and the kids will come back because they can’t breathe the air,” he said. “You go to London – one of my daughters lives there, and it’s so overpriced that it’s sick-making. New York has got tremendous attractions, but it’s also got a hell of a lot of problems. Look at the traffic – I have an office there and you can’t go across. Toronto is absolutely unique. It’s not flawless, but it’s so much better than the possible alternatives …” Something to think about...