July was the fourth consecutive month with a decline in residential sales with 6600 units sold on TREB. This represents a 40% decline from the peak month of April. These numbers are what we would expect for a March or November month. Actually, we were expecting even lower numbers in July and are now forecasting about the same level of sales for August. This should be the bottom of this cycle for sales volumes. The window for buyers should now run to the Spring Market of 2011.
What makes the condo market more difficult to forecast is the continuing supply of new developments coming to market which has significantly increased supply. At the same time, population growth and lifestyle changes have increased the demand for downtown living. So where is the balance? From a price perspective new downtown condos at $500-600 per sf. are significantly lower than other major world class cities. As well, they are also underpriced to other Canadian markets when you factor in income levels and migration. Why bank economists and North American investors believe we could experience a condo price correction is that rental rates do not support current prices. On the other hand investors from the rest of the world are paying 'all cash' and they are prepared to accept 3-4% on their investment rather than leave their money in the bank because of the stability of the Canadian market and future long term appreciation.
Over the past twelve months we have seen the sale-to-list ratio for downtown condos move from 80% to 30% without any drop in prices. To sight an example: we recently made an offer of $375,000 on a vacant condo listed at $395,000 with a two week closing. It was turned down by the Asian investor who had paid all cash. His rationale was that it was costing him only $500 per month to sit empty and in a year's time, he would be further ahead by taking an offer of $390,000!!
In this issue we examined sales at 717 Bay - The Liberties at Gerrard. This is an older condo building with great rental potential. The first unit we looked at was a two bedroom, two bath unit with solarium and parking at 1,000 sf. It was leased for $2200 per month. It sold in April of this year for $435,000 at a price of $440 per sf. The same unit sold for $390,000 the year previous and for $268,000 in 2004. Prices have increased by 10% per year. The second unit we looked at was a one bedroom, one bath with solarium and no parking at 800 sf. It also sold in April this year for $373,000 or $460 per sf. It previously sold in 2005 for $230,000 - again averaging about 10% per year in appreciation. Just up the street is College Park, the newest, biggest, and most popular condo in the Bay Street corridor. Selling prices there are running at $600 per sf.
The good news for investors was that all the new rental listings coming to market were absorbed. Maple Leaf Square for example which had over 100 rental units available is now down to less than 10! Overall, the condo rental vacancy rate continues to be less than 1%. The bad news for investors is that while condo prices have increased, rental rates have been relatively flat for the past three years! Specific numbers for July downtown: fifty studios were leased for an average of $1225; over 300 one-bedroom units were leased with rents averaging $1350 for no parking to $1550 for a den and parking. Over 190 two-bedroom units were leased from a low of $1850 without parking to a high of $2150 for a den and parking. In summary, July rentals were about 30% higher than the numbers for June and we expect August numbers to be just as big.