First quarter sales results are in from the Toronto real estate board. Let's take a look at what happened in Q1 of 2016 in the Toronto condo market along with what March's numbers mean moving forward into Q2.
Toronto Real Estate Surges in February With Some Signs of Moderation in March. But Don't Mistake Moderation For a Drop in Prices.
After a strong opening to the year in January (seen below) with the average condo price jumping +8.6% year-over-year, February absolutely rocked the real estate industry - and frustrated buyers trying to break into the market - with the highest year-over-year surge in Toronto condo prices that we can recall.
Despite a massive jump in sales of +25.6% (sales increases like this have traditionally meant a slowing of price growth), Toronto loft and condo prices rose a staggering +17.8% on average in February over the same period last year. Bearing in mind that a typical, average annual increase in sales prices of Toronto lofts and condos is somewhere between +4 to 5%, you can see just how surprising February's sales prices were - particularly given the massive sales spike that accompanied them.
Not only did February's results underscore the fact that the spring market had sprung a month early this year, they also proved that demand for condos and lofts for sale in Toronto is not only keeping pace with increases in stock, we're actually seeing stock shortages in particular neighbourhoods and condo types like authentic, hard lofts. And that's sparking fierce bidding wars in some cases.
It was clear though that February's dramatic rise in year-over-year price growth couldn't continue indefinitely and so it was no surprise to see that growth rate fall to a more traditional +4.3% in March, as seen below. And this is about where we'd expect it to continue in the coming months. But increases in sales were still through the roof in March - +20.7% in Toronto and +36.1% in the 905 condo market.
Let's be clear about what price moderation means in this case though - a moderation in the rate of year-over-year price appreciation is by no means a sign of prices dropping. The average sales price continues to rise on lofts for sale in Toronto. You're not going to get a deal by waiting to buy later this year.
All charts courtsey of TREB.
The big disappointment here for buyers is that years ago in the height of the condo development frenzy, countless analysts were calling for price decreases by 2016 when stock would see it's highest levels ever. They were right about condo stock - there's more condos on the market in Toronto and the larger GTA than ever.
So, why aren't prices coming down as stock increases? It's simple. Demand is also increasing.
It's Not Going to Get Any Cheaper to Buy a Toronto Loft in the Foreseeable Future
Despite the huge number of condos for sale, it hasn't gotten any cheaper to buy. First time buyers in particular are struggling to out-earn / out-save the market and it's become virtually impossible for most to get a foot on the ladder without a living inheritance from the bank of mom and dad.
There's no one reason behind rising demand but the biggest contributors have been the rising costs of freehold homes, pushing houses out of reach of most buyers, and record-low mortgage rates pushed up against sky-high rents, converting many renters into would-be first time home buyers. There's an incredible amount of first time buyers looking for condos and lofts right now. Some studies estimate as much as 60% of the Toronto real estate market activity is being driven by first timers.
Add to these two factors a continually strong demand from foreign buyers - Chinese buyers, of course, but we're also seeing an increase in US activity here at the office - along with a growing down-sizing market and strong population increases and it's really not all that surprising that the Toronto market has absorbed all of these new condos.
Because of that, we've seen prices continue to grow rather than flatline or even decrease as some experts forecasted.
Authentic, Hard Lofts Becoming an a Smaller Part of the Real Estate Mix
What's most disheartening for loft buyers is that authentic lofts now represent a much smaller percentage of overall available stock than ever before in Toronto's history.
Developers simply aren't converting many more historic buildings, opting instead for new build condos and soft lofts. Profits tend to be much higher in new builds and there's certainly a lot less red tape to cut through at City Hall if you're not dealing with an historic building - particularly one that has heritage designation. This is why it's not unusual to see hard lofts appreciating at a much higher pace than the average condo figures we reviewed above.
If you're selling a loft, this is great news. Even if you're buying another loft, it's relative to a certain extent. But if you're trying to break into the Toronto loft market, it can be disheartening to see this kind of aggressive growth.
Buyers take heart - it may take you longer to find the right Toronto loft than someone buying a cookie-cutter condo but it will happen. And even though price growth may be outpacing other types of condos in some hard loft buildings, there are a lot of authentic lofts that are priced surprisingly well on a cost per square foot basis - many well below the average shiny, new build condo.
Our advice for loft buyers is to find yourself a good Real Estate Agent whom you trust and who knows the loft market inside and out - hire a Loft Expert, not a generalist Realtor - and be aware that the buying process can take anywhere from a few months to six months or more to find (and win the bid on) the right loft.
In your initial buyer's consultation with the agent, after determining budget, narrow down the neighbourhoods and buildings you'd consider buying in. Once you've done that, your agent can send you new listings as they arise. When the right one does, be prepared to move fast and make a strong offer. Get your mortgage pre-approved in advance and make sure that you understand market values for the buildings you're looking in (your agent will take you through these) so that you're prepared to table a strong offer right out of the gate.
You should never be fool-hearted in making a rush offer (or exclude conditions that are absolutely necessary for your particular set of circumstances) but at the same time, this market favours the bold. If you're too slow / indecisive or have an offer riddled with finicky conditions, it's likely not going to cut it in today's loft market. Do the necessary legwork and research up front so that when the time comes to offer, you can be confident and decisive. Preparation can make all the difference between winning and losing on a bid.
Pictured throughout is our latest listing, available at date of publishing, a stunning 2 bedroom "forever loft" in the coveted Candy Factory Lofts on Queen West. Asking $1,300,000. SEE LISTING