Trolling for deals in a wilted Toronto condo market

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Are condominium apartment investors sniffing around for deals in Toronto’s downtown core?

Anecdotes abound, but the only positive data points are the relative bumps in sales that saw 1,551 condominium apartments sell in December across the city. According to data from the Toronto Region Real Estate Board, it wasn’t even the busiest month of the year (July saw 1,689 sales), but it was about the same level as September and August (1,549 and 1,536, respectively), which was welcome news to realtors who observed down months in October and November (1,438 and 1,375).

According to analysis from Urbanation, December sales in the two most active submarkets in downtown Toronto (C1 and C8) jumped 26 per cent month-over-month and 102 per cent year-over-year, to their highest level since May, 2019.

However, while most of the GTA is seeing booming price growth in other home types, condominium-apartment prices are growing slower and a major drag has been the price drops in the downtown Toronto submarkets that have seen the most transactions and highest levels of available inventory. In C1 (south of Bloor, between Yonge and Dufferin) average apartment prices fell 1.4 per cent month-over-month in December, and 11 per cent year-over-year, from $772,390 to $683,525. While C8 (south of Bloor between Yonge and the Don Valley Parkway) was down the same month-over-month average, prices fell only 8.6 per cent – $738,022 to $673,916 – year-over-year.

So, who is buying more of these condos at their new low prices?

“I suspect it’s investors because I look at them like swing voters,” said Scott Ingram, a CPA and sales representative with Century 21 Regal Realty Inc. “That is, regular end-users just chug along at their steady pace, and if you have any wild changes in the market in either direction, it’s likely due to investor behaviour.”

Mr. Ingram has noted that even in the months that saw average sale-price drops, the volume of sales was relatively stable; the big change in the fall was the competition among thousands of new listings.

According to Urbanation Inc., the total number of condo apartments available for rent in Toronto in December was 8,076, down 12 per cent from September, but up 162 per cent from December, 2019.

In addition to the available inventory, the most important factor driving prices down in these core areas seems to be the falling price of rent. John Pasalis, president of Realosophy Realty Inc., calculated that in the old city of Toronto, once the priciest rental market in Ontario, average rents fell to $2,132 at the end of December, which is lower than the GTA average.

An asset that pays you less and less every month isn’t typically a good bet, but according to Andrew la Fleur, who specializes in investor-buyers for Re/Max Condos Plus, purchasing a new condo in Downtown Toronto has been a cash-flow-negative investment for years. “Any single unit property, in the city of Toronto, that is break-even cash flow based on a traditional 20-per-cent down [mortgage], has been nearly impossible to find in the last five to 10 years, but most especially in the last four since 2016,” he said.

For his buyers, return was calculated on eventual equity appreciation, and with prices and mortgage rates falling, the amount of cash an investor can expect to lose while waiting for that equity payday has actually shrunk.

“Even with the recent decline, investors are still paying 2019 prices for rents that are at 2013 levels and falling. It takes a lot of confidence to jump into that market,” Mr. Pasalis said. “I think a lot will depend on what the rental market looks like in [the first quarter]. If the rental market levels out and rents stay flat or improve then I think investors will keep buying.”

In the first week of 2020, sales have risen, year-over-year, in the downtown markets. But it’s hard to tell how long it has taken to sell those condos, another signal about the level of demand in the market.

The Toronto Regional Real Estate Board (TRREB) is the primary source of market data, but one thing it doesn’t provide is useful statistics for how long certain property types spend on the market. Until 2019, TRREB only provided a metric known as Days On Market (DOM) for home sales, which was misleading because it didn’t count how many total days a property had been on the market – just how many days the most recent listing had been live. For a variety of reasons, agents had fallen into the habit of taking down and relisting homes in the MLS after a certain number of days had passed.

Now, TRREB provides two topline figures for the whole market of Listing Days On Market (the old misleading figure) and Property Days on Market (PDOM), which captures the total number of days (with some restrictions) a home has up been for sale. But TRREB does not provide those more accurate PDOM figures for subtypes of sales (detached, semis, townhomes or condominium apartments). A spokesperson for the agency said there was currently no report that could be generated to display that data, so it’s unclear how long it’s taking to sell a condo in downtown Toronto.

Mr. Ingram pointed to one example of a seller trying to find their price across three listings: a 27-day listing starting in September for $759,000, a 92-day listing for $759,899 starting in October and the latest listing starting Jan. 9 (back to $759,000).

Condos that sold in December were listed for an average of 36 days in the key downtown markets, 10 days longer than those that sold in November. How many of those long-lasting listings were investors snapping up deals from exhausted sellers taking whatever offer they could get at the end of an otherwise wild year in real estate?

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