Ralph Fox's Toronto Real Estate Newsletter August 2013

1. 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.

2. 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.

3. 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...