Condo sales, prices booming thanks to supply and demand

By Ben Myers
October 11, 2016

In my latest Market Manuscript report I wrote about housing supply in great detail, as no one else seems to be. The media likes to focus on demand from foreign buyers, local investors, move-down baby boomers, up-and-coming Millennials, and downtown stroller-pushers. The stories always focus on how demand is driving up prices, but what about supply?

In the resale condominium apartment market, the number of active listings was down 40 per cent annually in the GTA at the end of September, and the average condo has increased in value by 9.3 per cent year-over-year, per the Toronto Real Estate Board. In the City of Toronto, listings are down 41 per cent, while prices are up 6.6 per cent. Keep in mind that average unit size continues to shrink, when per-sq.-ft. prices are examined, condo prices are nearly growing at a double-digit rate.

According to Canada Mortgage and Housing Corp., almost 28,900 condominium apartments were completed during the first nine months of 2015. During the first nine months of 2016 there were just 12,200, a decrease of 58 per cent year-over-year. In the third quarter of this year, 98.7 per cent of the condominiums that were completed were already sold, and unsold developer inventory has fallen 68 per cent since the May 2015 peak! If you were hoping for a quick closing on a never-lived-in new unit, don’t hold your breath. There isn’t much out there.

Overall unsold inventory held by developers (pre-construction, under construction and occupied) has decreased 22 per cent annually per Altus Data Solutions. The average asking price for a new condominium in the GTA has increased 6.7 per cent annually.

Resale supply is down, prices are up. New supply is down, prices are up. It really makes a lot of sense, if several people are competing for the same units, it will drive the prices up, or at the very least, prevent price reductions.

Contrary to my forecasts, the number of new condominiums starting construction in 2016 is down 22 per cent from last year, so less relief in the form of newly completed buildings is on the horizon.

What does it mean to you? It likely means higher prices. Despite new mortgage rule changes and a push to reduce the number of over-leveraged buyers, the data suggests that these folks are fewer in number than people think, and a lack of supply will continue to fuel pricing in the resale market. First-time buyers will continue to find the GTA condo market expensive, and find themselves renting again in 2017. The growth of potential tenants will continue to fuel investor buyers in the new condo market.

It is important to not only follow the current trends in the housing market, but examine the forward looking data as well. The numbers suggest the demand will continue to outstrip supply in the high-rise condominium market in Toronto.

About Ben Myers

Ben Myers is President of Bullpen Research & Consulting, a boutique real estate advisory firm, that works with landowners, developers, and lenders to better inform them of the current and future macroeconomic and site-specific housing market conditions that can impact their active or proposed development projects. Follow Bullpen on Twitter at @BullpenConsult or find Ben at bullpenconsulting.ca

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