January sales this year were off by 50% from January of 2008. This was consistent across all markets - residential, condos, and even downtown condos sales. January 2008 was an exceptional year as sales spiked to avoid the introduction of the City Land Transfer Tax and the comparison may be unfair. To get a better measure, 2009 sale numbers matched those from 2001! So what is the problem? Unlike other real estate markets around the world that suffer from serious economic issues, our market suffers from a ‘Perception Gap’!
Today’s potential buyers think that sellers have to sell at any price and that they can just ‘low ball’ the offer. And more potential buyers keep waiting for the bottom of the market. The trouble with this approach is that you only know when the bottom of the market occurs after the fact – usually about three months too late. On the other hand, most sellers do not have to sell – foreclosures are still small in our market, as opposed to what is happening in the U.S. Hence sellers are still waiting for last year’s prices. The reality is that while average prices reported in the media are shown as down by 10%, the truth is that when you adjust for a change in the mix of sales – more lower- priced properties are now selling as opposed to a year ago – prices are down only 4% on average, according to studies conducted by our banks. Now analyze this decrease over the price range of all properties, you will find that the higher priced properties are down the most, over 10%, and those entry-level properties have shown no decrease in prices!
While it appears that there is a surplus of listings, the truth is that well-priced, properties are in short supply and they still sell out in two weeks! So what to do? We still believe that the first quarter of this year will belong to buyers, but by late summer we think sales activity will be stronger and buyers will be competing with each other over some properties. The challenge for buyers is to not leave it too late to get into this market. The challenge for sellers is to get realistic – try pricing your property below the last sale – not 5% higher!!
To understand this market in terms of prices means having to get past averages and to look at individual sales. Water Park City, at Lakeshore and the foot of Bathurst has become a haven for first-time buyers. The first unit we looked at was a one bedroom, with parking, locker, and balcony; at just under 600 sq.ft. It sold in July of ’07 at the peak of the market at $232,000. The same unit sold again in November of ’08, after the market had turned for $255,000. This represents an increase of 10% in 15 months! The last price was at $440 per sq.ft. The second unit we looked at was a studio without a locker, parking, or a balcony. Bare bones at less than 400 sq.ft. It sold in July of ’07 for $169,000 and the same unit sold again for $172,000 in July of ’08. The price per sq.ft for this unit was $430. So what have we learned from these sales? First the market is not crashing. While slower sales have translated into falling prices in the U.S., prices at the lower end of our downtown condo market are still holding firm, even as sales have slowed. What will lead to increasing sales is when buyers and sellers bridge the ‘Perception Gap’. And it will happen sooner rather than later as people cannot postpone condo buying and selling decisions as easily as they can with the house market.
January is usually one of the slowest rental months of the year. But not this year. 173 one bedroom and 97 two bedroom units were leased. Many investors who could not get their sales price, turned instead to the rental market. The result was that units stayed on the rental market longer -30 days on average as oppose to 15 and the list price to lease price dropped from 100% to 98%. The most popular unit was a one plus one bedroom with parking which averaged just over $1500 per month. Two bedroom units average $2100+ with parking and $2,000 without. Overall, rental prices declined about $50-75 per month on average from September of last year.