The Bibby Group Newsletter | December 2018

December 14, 2018

Increased demand propelled the downtown Toronto condominium market to record heights in 2018, as affordability fueled the rise of vertical growth. The condo sector accounted for 37% of total residential sales—and it’s expected to continue trending upwards in 2019. The downtown market is the only segment that showed resilience following a spring 2017 market correction, as this year we witnessed a 12.5% increase in year-over-year values, with Toronto outperforming every major market in Canada. The first half of the year was extremely robust and accounted for the majority of our growth, and despite rising interest rates and recent adjustments in our equity markets this fall, moderate growth is anticipated for 2019.

Limited inventory continues to drive pricing, as there are fewer affordable options, including rentals. Market concerns of over-supply on the new development side have diminished since last year, as new inventory has quickly been absorbed by end-users, belying strong demand due to fewer resale suites coming to market. Average resale condominium prices are hovering at $700,000, or slightly below $1,000 per square foot. Immigration, lifestyle choices based on aging infrastructure, and long commute times have all pushed buyers to embrace the condominium lifestyle in downtown Toronto.

The luxury condominium market saw significant gains this year on the transaction side, as properties in the $1- to $2-million range were at an all-time high, with 621 units sold in the GTA. In the $2- to 3-million range, however, we saw a decline, with approximately 14% fewer units sold in 2018 versus 2017. For the $3-million range, the sales volume was unchanged from last year. Finally, inventory over $4 million remains low, although local downsizers and foreign demand have substantially increased sales of top-tier condominiums and private hotel residences within the last year. In previous years, suites over $4 million typically remained listed for months without offers, but the number of units traded this year increased.

For all of our homeowner clients, the average price of a central detached house surpassed $1.621 million. Semi-detached homes are currently at an average sale price of $1.256 million, while the average townhome is $1.105 million. As I have mentioned throughout the year, a growing number of our homeowner clients are opting for additions or extensive renovations rather than new purchases. Home types with lower average price points have seen stronger price growth in recent months, especially townhomes and semi-detached homes, which are up approximately 10.8% year over year. Detached homes have experienced slightly less growth in the central core due to affordability, although year-over-year we have seen an increase in value of approximately 8.5%

Looking ahead to 2019, I expect the average price of condominiums downtown to surpass $1,000 per square foot on the resale side, and I do not see a surge of new resale inventory coming to market due to elevated transaction costs (people are simply not making small lateral moves anymore). Furthermore, the majority of our downtown land is currently owned by developers, who are also diversifying into the rental market. This ultimately means that fewer new-construction suites will be offered.

New construction in the central core this fall was released at over $1,000 per square foot and is expected to increase in the new year. There is no question that affordability is an issue. All levels of government must work together with developers to streamline the building process, since builders are facing skyrocketing construction costs. To prevent another run-up in housing values, we’ll need to see more affordable options that can accommodate buyer and renters alike.

As mentioned earlier, I expect to see slow to moderate growth as we enter the 2019 market. Indeed, it appears that we already witnessed a minor (and rather under-publicized) “correction” this fall. The strength and resilience of our downtown market is unparalleled, although consumer confidence is lower than normal due to adjusting equity markets, interest rate hikes, the OFSI-mandated stress tests and, above all, affordability. Simply put, people do not feel as good about spending money.

That said, buyers in 2019 are looking at a market in which they can negotiate and submit offers with conditions—somewhat of a foreign concept in our market over the last decade! With this in mind, I do not expect to see much new inventory enter the market, as new listings were down this year more than year-over-year sales. We are unlikely to see the same type of run-up that we had in the spring of 2017 for quite some time. This may be the year where things return to normal. And by Toronto normal, I mean 3% to 7% year-over-year price appreciation rather than 22%. Time will tell, and I look forward reporting back to you all in the new year.

To all of my past, present and future clients, there is no time more fitting to say thank you for all of your support throughout the years. All of the very best to you and your families for 2019.

Happy Holidays!

All My Best,
Christopher Bibby