Condo market headed south for the winter?

This month I added condos along Highway 7 between Yonge and Warden in Richmond Hill and Markham. There the downtrend in sale prices is a little more pronounced than Yonge & Finch and Downtown Lakefront. Ironically, if it wasn’t for the very high days on the market for Highway 7 in January 2012, its trendline would be the steepest (worst) of the three areas. A rising time to sell has historically been a leading indicator of downward pressure on prices.

Falling sales and rising inventory in the GTA continue. Bank of Canada reports unsold pre-construction units currently at 14,000 units, doubling since last year. Unsold units under construction is up 40% this year, from 5,000 to 7,000 units.

While developers talk about scaling back construction, many have passed the point of no return, so there are “more condos on the horizon despite dipping prices” (see links at bottom). In Ontario, developers are liable for up to $7,500 in expenses for delays past contracted occupancy dates.

A continuing phenomenon in the condo market is the shrinking average size, now only 800 sq ft averaged across 1, 2, and 3 bedroom units. One bedrooms start in the 400 sq ft range and two bedrooms in the 600 sq ft range. This keeps prices low enough to attract investors and speculators. Renters should thank them for the ongoing supply of accommodation.

What next?

Bank of Canada’s “harsh warning on the condo market” (see links) is the latest in its ongoing efforts to slow the market and prevent a crash. The Bank’s alarm is about the condo market, but it’s main concern is household debt, now off the chart at 165% of disposable income. Real estate in the US – as in the UK and other countries – hit the skids when their household debt climbed to all-time highs.

The operating return on investment on the average-priced 2-bedroom downtown unit bought all-cash is around 4%, a decent return in a rising market that offers capital gains. If there is an 80% mortgage, the investor’s operating ROI will be near zero or negative. If the outlook on prices deteriorates when might investors start to bail?

You might be the first to know as I continue to track actual sale prices. Next month I’ll add a 4th area.

When to make your move

If you are an owner investor who intended to buy low sell high, your time is now. Ask me how I can save you money. If real estate is an asset class in a long term portfolio, have a chat with your financial advisor.

If you are looking to buy, you have options:

  1. Start looking for a resale deal now. There are sellers out there ready to negotiate. I’ll find them for you.
  2. Take advantage of developer incentives. They’re getting better and better. Be aware incentives can be withdrawn anytime as inventory comes down. Some developers will start leasing unsold units. What they will not do is anger early buyers by lowering prices.
  3. Wait and see what happens month by month, then do #1 or #2. Be aware that the market can turn up despite the forecasts (it happened in gloomy 2009!).

I also offer big rebates on purchases, direct to you in your name. It could cover 100% of your costs. Ask me about it. If you plan to visit model suite sales offices and you want my rebate, check with me before you go. If you “register” on your own, you have lost the rebate – a costly move.

Please forward a link to this blog to family, friends, and co-workers.

Charles Young
Real Estate Sales Representative

call or text: 416 436-5851

Recent news stories

Bank of Canada issues harsh warning on condo market (Dec 2012)

In Toronto, more condos on the horizon despite dipping prices (Dec 2012)

Key consumer debt-to-income level swells to almost 165% (Dec 2012)

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Charles Young

Charles Young

Sales Representative
CENTURY 21 Innovative Realty Inc., Brokerage*
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