Advice | STAT CHAT
Toronto condo prices continue to baffle forecasters By Ben Myers
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JUNE 2009 WAS THE LAST time GTA
resale condo prices declined on an annual basis, dropping 0.7 per cent from approximately $245,000 in June of 2008 to $243,000, according to data from the Canadian Real Estate Association's MLS Home Price Index (HPI). Fast-forward to April of 2017 and the average price has reached $450,000, and condo values have shot up 29 per cent year-over-year. During the previous market peak in 2011, condo market hysteria was running wild, new condo broker launches were frenetic, and condo prices in the resale market reached 8.3 per cent annual growth that August. Every week someone declared that the market was in a bubble, that speculative investors were rampant, that “it isn’t different this time,” and that it “won’t end well.” Following that boom, the market slowed significantly (but didn’t crash), with annual resale price growth of just 0.2 per cent by the end of 2012 per the MLS HPI. Prices stabilized in late 2013 and condo price inflation was steady between four and five per cent from that point until early 2016. In contrast, Toronto has experienced hockey-stick style price growth since. Fortress reviews all house price forecasts at the end of the year, and predictions rarely come close to the actual results. In fact, many analysts would do better if they simply forecasted the exact same price growth as the year before and did zero analysis! That’s not good. 32 YPNEXTHOME.CA
It is too early to tell if Ontario’s newly announced Fair Housing Plan will dampen new or resale condo activity (or both), but in mid-May our partner Lamb Development had another successful new release at a highrise project off Richmond Street West, with a line-up down the street. Despite the expanded rent control included in the Fair Housing Plan, new condominium investors don’t appear to be deterred by the prospect of below-market rent increases for units they hold and rent out. At the Land and Development Conference, economist Peter Norman of Altus Group said the GTA needs approximately 13,000 new rental units annually to satisfy demand. Over the past 12 months (May 2016 to April 2017), builders and developers have delivered just 2,530 rental units. This level of purpose-built rental construction is near the highest level since the mid-1990s. Based on those two data points,
the GTA will still require private landlords to supply about 10,500 new rental units via leased condominium apartments to just keep up with the current level of demand. Keep in mind that it is not out of the realm of possibility that rental demand could go much higher! Be careful when relying on condo price forecasts as those making them (including myself) haven’t had a great track record. There is still plenty of rental demand for required annually for privately held condominiums. Buy a new unit with the intent of holding it for five or more years and don’t get caught up in the short-term price volatility and near-term forecasts. Fortress Real Developments partners with builders across Canada, and Ben assists in evaluating the market and projects that Fortress engages in. Follow his blog posts and commentary on the Canadian Housing Market at fortressrealdevelopments.com or follow Ben on twitter at @BenMyers29