Real estate agent Erica Smith was surprised when her client faced only two rivals in the chase for a one-bedroom condo unit in the coveted St. Lawrence Market area.
Ms. Smith, of Stomp Realty Inc., says the relatively low turnout helped her client snag the unit for $535,000, or $16,000 above the asking price of $519,000.
Ms. Smith says she can’t remember the last time she saw an asking price in that area start with the number five. She estimates that last year the unit would have gone for $600,000 to $615,000.
“We got really lucky that the seller just wanted to unload it.”
Condo sales in the core of the Greater Toronto Area have been gradually losing steam after being the hottest segment in the market for a couple of years.
Sales of condo units dropped 14.1 per cent in Toronto’s central 416 area code in March compared with March of 2018, according to the latest numbers from the Toronto Real Estate Board.
While sales of detached and semi-detached houses in the 416 also slipped in March compared with the same month last year, sales of townhouses in the 416 jumped 15.2 per cent in the same period.
The average price of a condo in the 416 last month was $603,969, while the average price of a townhouse was $741,881.
Jason Mercer, TREB’s chief market analyst, points to a dip in new listings in March as one reason that prices have held up in various segments of the market. New listings dropped 5.1 per cent compared with the same month last year, while active listings slipped 2.5 per cent in the same period.
Agents say some condo owners are using the increased equity in their units to move up to single-family homes.
But other factors are at play in the condo market as well.
Ms. Smith says it’s harder for buyers to get financing now since a “stress test” came into effect at the start of 2018. Condos have soared in price, and banks are very cautious in their lending these days.
“It’s a lot more challenging,” she says.
First-time buyers who are looking to spend $600,000 or $700,000 for an entry-level unit downtown struggle to get a mortgage in many cases.
Ms. Smith points out that a potential buyer who qualified for a $1-million mortgage before the stress test would only be approved for an $800,000 loan now.
And even for buyers who can afford a $700,000 or $800,000 condo, their choices are slim.
“There’s not a lot of inventory at that price range,” Ms. Smith says.
She adds that young millennials who are moving to Toronto for jobs in the technology sector are striving to get into the market, but they want a turn-key unit that’s close to their workplace and their gym.
“The wish list is so much longer. You’re paying so much for a product now. You want everything.”
Ms. Smith says the federal government’s recent pledge to help first-time buyers in its latest budget will do little to boost Toronto condo buyers. Under one of the measures, the feds will increase the maximum tax-free withdrawal from registered retirement savings plans under the federal Home Buyers Plan to $35,000 from $25,000.
Ms. Smith says the change is too small to help millennials in the rich housing market of downtown Toronto.
“They’re depending on inheritance and parental gifts. It’s frustrating for them,” she says.
Sellers, meanwhile, became so accustomed to outlandish bidding wars and high prices that they are not willing to budge on price now.
“The last two years, the numbers were mind-blowing,” she says. “Sellers are very stubborn right now. I think that people are stuck on those numbers.”
Buyers are cautious and equally obstinate, she says. Many refuse to sweeten their offers to meet a seller’s number.
"End users” – the industry term for people who buy units in order to live in them – are reluctant to jump into the market, she finds.
Many are giving up on the notion of buying a home in the city.
“They’ll rent in the city and buy a cottage.”
Many of the buyers roaming around the downtown condo market are investors, she says.
The market is strong in the $600,000 to $800,000 range, and the lack of inventory pushed the average price in the 416 up 2.3 per cent from March, 2018.
For the first time in a long while, Ms. Smith is seeing conditional offers on condo units. Some deals are conditional on financing, while others are conditional on an investigation of the building’s status certificate.
Investors have become much more strategic in their thinking, she says.
“Before, they flipped everything very quickly,” she says. “Investors don’t want to let go now.”
She now advises investor clients to hold onto units for the longer term. Some are buying larger units because they see that young parents are no longer choosing to raise their children in detached homes, she adds.
Some investors are Toronto-based and others are international. Many choose to offer short-term rentals instead of having long-term tenants, she adds.
“They like to just park their money. It’s a very safe economy,” she says of the buyers from overseas.
Ms. Smith says many condo buildings have by-laws that prohibit short-term rentals, but lots of investors go ahead and do it anyway.
“People are still doing it and getting away with it,” she says.
With investors holding onto their condo units longer, desirable places are hard to find and that lack of choice is weighing on sales, according to Ms. Smith.
Meanwhile, the market for single-family homes outside of the core is heavy with inventory, Ms. Smith says.
She often works with people who become clients with their first condo purchase and then return to buy and sell homes in areas such as Etobicoke, Port Credit and Lorne Park.
Any property above $2-million is likely to sit, she adds.
“The detached market is really slow.”
Homeowners are listing their properties in those areas, but buyers have a lot to choose from.
“There aren’t just one or two $2-million homes – there are a lot of them.”
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