May residential sales from TREB in 2009 were 2% higher than in May 2008. This marked the first month where sales for 2009 exceeded 2008. It should be noted that sales for 2008 peaked in May. Preliminary numbers for June of '09 suggest that sales will be even higher than in May - about 13%, and almost 20% ahead of June in 2008. Yes the resale market is back! Note we said resale and NOT the new development market. Two questions that are now being asked as the market enters the summer months: Is this the 'false up' and why isn't the new sale market part of the revival?
First let's talk about the 'false up'. Doomsayers want you to now believe that this market rebound is only temporary and that we are heading downwards again by September. Their rationale is that we are still in a worldwide economic recession and that it is time for real estate to enter a bigger decline after an eight year run. But all the economic indicators tell you that the condo market is sustainable at these levels. While unemployment is higher, unemployment is no way near the levels of the eighties and nineties. Affordability - real estate prices, mortgage rates, and incomes added together - is the best (lowest) it has been in over ten years! We have no foreclosures hanging over the market - in fact we have a shortage of listings in the resale market and a sale to listing ratio of 60% when a normal market is about 35%. Finally there has been no price 'bubble' - just prices rising in the 3-5% annual range - the historic rate of increase for real estate. The earlier correction was only caused by a lack of consumer confidence and not from underlying economic issues!
However the new sale market is a different story. New sale projects are typically $100 -150 per sq.ft. higher than the resale market. Developers are facing a choice - many projects stalled at 50% in presales (lenders want a minimum of 70% to begin construction) either have to slash prices (which they can't for fear of alienating earlier buyers) or offer big incentives such as free parking, lockers, free upgrades, or no condo fees for two years; or their project won't get built. This past month, our Company sold new sale units for the first time in four or five months, but only with those that offered big discounts. Other new projects who are not reducing won't get built. Many of these preliminary buyers will be forced into the resale market or into those new projects that will be built. This will only strengthen the condo market for the balance of this year.
Units leased in May were about equal to April. 200 one-bedroom units and 137 two-bedroom units were leased in the Downtown condo market. You would think that with 'buying' such an attractive option that rental rates would have started to decline but that has not been the case. Bachelor units are leasing for $1200 on average. One - bedroom units start at $1400 and parking is worth a $100 per month. Two-bedroom units are starting at $1750 without parking and range to $2100. We actually leased 8 three-bedroom units for the first time in months and they averaged $3200. The leasing market remains strong. Renters were paying a 100% of the asking price and units were averaging about 20 days on market before being leased.