Sales Commentary

Sales for May on TREB reached 9,989 units (we predicted 10,000 earlier in May). That is 19% higher than May of 2018. But before anyone thinks we are back to a ‘boom’ market, realize that the average over the last ten years for sales in May was 10,300 units. Of more importance is to track the month over month growth in sales. For 2019, April to May was 11% and in 2018 it was 8%. Looking to June, we are expecting sales to level off. In 2018 they actually declined in June. Our 2019 Forecast made in January called for annual sales of 87,000 units. Everyone said we were too optimistic as they were forecasting the same as 2018 – about 78-80,000 units. Currently we are tracking for 89,000 units.

In terms of the overall condo market, sales increased 7% over May of 2018. Area 905 increased by 24% and 416 was unchanged from 2018. Looking at the Humber Bay condo market, sales were higher by 5% and in downtown, condo sales were 3% lower than May of 2018. Last year, downtown condos were the strongest market and experienced the biggest sales and price gains on TREB. This year more condo buyers have been forced into 905 because of price.

In May, new listings declined faster in both the Humber Bay and downtown condo markets from a year ago than the change in sales. This is a lead indicator that prices will continue to increase but at a slower rate. The sale-to-new listings ratio remained at 60% - a sellers’ market. While we continue to have some multiple offer scenarios, the sale-to-list price ratio remains at 100%.

Rental Commentary

The number of rentals in May at over 1300 units was 11% higher than in April. Rentals for May will be for occupancy in June and July. Rental rates overall were $25-50 per month higher than the previous month.

Studios increased to $1875 on average. The one-bedroom market without parking averaged $2150 and with parking it averaged $2300. The two-bedroom without parking was $2850 versus $3150 with parking. In May, we saw the three-bedroom market average $4440 per month. For investors, condos downtown have been renting for $4.30 to $4.50 psf per month.

For years economists have been focusing on the ratio of average price of real estate versus average income. While that may have been relevant when most people had salaried jobs, we would argue today that self-employed, immigrants, and generational wealth transfers, have made this calculation less relevant.

However, for the rental market, we would argue that the ratio of rents to average income is still very relevant. From experience, most investors want to rent to salaried tenants and not self-employed. Also, tenants tend to be younger with less access to additional funds. Hence in the longer term, rental increases will start to level off. Average salaries will only be going up by 2-3% per year and that is what investors should be planning for. Basically, we had a major spike in rents with the introduction of rent controls. Fewer tenants moved and hence we had a reduction in supply with a growing demand for rentals, caused in part by the Stress Test. Again, we had Government intervention causing less affordable housing, rather than more.