We reviewed the final 2015 GTA market results last week and it was a record-breaking year for property sales. It seems this hot market streak is not ending soon and knowing how to navigate the market in 2016 is critical for both buyers and sellers of Toronto condos.
I want to start off by saying that there’s a misconception that Realtors love a super hot market. The fact is, moderation is best for everyone. An over-heated Toronto condo market has meant a lot of listings but it’s also meant more competition for sellers, an oversupply of tiny, cookie-cutter condos and aggressive bidding wars on the best of condos. There are also far too few listings in some property categories like larger, family-sized condos with reasonable maintenance fees and unique, hard loft spaces.
For the best buyer & seller advice, you really have to arm yourself with the latest information and zoom in at what’s happening not only at a regional level but by neighbourhood and by each, specific building. But there are some overarching market trends that are important to be aware of.
Here are our top predictions for 2016 to help you make smart buying and selling decisions.
Top Five 2016 Toronto Condo Market Predictions:
You’ll no doubt find many Toronto condo predictions online that will talk about extreme, boom or bust theories for the coming year. We’ll state right off the bat that we think 2016 is largely going to be more of the same – rising property prices (for the average condo, in the +4-5% appreciation range) and a serious supply issue when it comes to family-sized condos.
We believe that mortgage rates will edge back up slowly rather than a rapid, massive jump and so any moderation in the rate of condo value appreciation is also likely to be slow and steady. And that’s what we predict – a moderation in the rate of growth (but likely not until late 2016 or even 2017).
Let’s be clear – we are not predicting a drop in condo values rather a slight moderation in average price growth from last’s years +5% to, say, +3% which is a more traditional average annual value appreciation for Toronto condos. But again, likely not until well into 2016, if it happens at all this year.
Now, just because we’re not predicting a drop in the condo market, that doesn’t mean you can’t lose in Toronto real estate. We’re talking averages here and just as there are winners in real estate, there are also losers. That’s why it’s not enough to read the headlines and work with a generalist Realtor if you want to out-earn the average.
Roncesvalles condos increased on average by 11.1% in 2015 over 2014 (versus the Toronto average of 5%) but within that neighbourhood there are even bigger winners that have gone beyond that. The Robert Watson Lofts, for example, increased by nearly 20% in value last year.
Whether it’s with us or another specialty team, we encourage you to sit down and talk with several condo experts when you’re hiring a Toronto Realtor to make sure that you select your best Realtor match – someone whom you click with but also someone who truly understands the condo market inside and out.
#2 More People Will Lock In Their Mortgage Rates
We all know it’s coming. Mortgage rates will edge back up eventually. But many brokers are still recommending variable rates which are as low as 2.14% as of date of publishing, advising clients to wait until the last minute to lock in a fixed rate. Even the Financial Post says it may not be time just yet to lock-in and there’s talk of a further, potential cut to prime next week, which we’ll hear the results of at the Bank of Canada’s next pronouncement on Jan. 20th.
Here’s the thing… technically, sticking with variable, for now, is probably the best advice from a bottom line perspective but it’s not what we’re recommending to the majority of our clients this year. And we think the majority of buyers will agree with us and lock-in sooner rather than later.
It’s true that, if you’ve been playing the variable game up until now, you’ll be further ahead than someone who locked in years ago and that should continue for the short-term. But the difference between today’s variable and fixed rates is so negligible in the big scheme of things that the peace of mind and ability to project your monthlies with certainty is well worth paying a little extra for many if not most of our clients.
You can get 5-year fixed rates as low as 2.44% right now, so we’re talking the difference of maybe $100 a month on your mortgage versus variable, depending of course on your mortgage amount and terms. The difference could be even less – we’ve had the numbers work out for some clients to be as little as $40 or $50 / month.
If you’re applying for your first mortgage this year or you’re renewing / considering switching, locking-in now will give you peace of mind and help with budgeting. And really, if the difference of $100 or so a month is make it or break it for you now, you can’t afford that property. You’re leveraging yourself too high.
Just remember that the contract terms are just as important (if not more) than scoring the lowest rate. In particular, you want to make sure that you can get out of the contract without a major financial penalty which can be tens of thousands of dollars with some lenders. Generally speaking, smaller lenders tend to have more flexible terms than the big banks.
#3 A Shift in Public Perceptions Around Purpose-Built Communities Like Liberty Village & the Distillery District
Even though there are only a handful of condo buildings in the Distillery District, the value for money and the range in unit sizes is great – from small, 400 sqft starter condos to 1,500 sqft+ 3 bedroom spaces.
Let’s face it. Even though tens of thousands of people live in Toronto’s purpose-built condo communities in and around the core and even though they offer some of the best square footage values in the city, there are a lot of naysayers that say they wouldn’t touch Liberty Village, the Distillery District, CityPlace, Canary District and the like with a ten foot pole.
Funnily, statements like this typically come from outsiders who’ve never spent any time there. Even King West dubbed “Condo Nation” turns many a buyers’ noses up.
Of course, each of these communities is not like the other. There are pros and cons to each and we would rank the Distillery above CityPlace for example, in terms of quality of condos and general lifestyle. But the price differences reflect that and there’s certainly a place for CityPlace in the Toronto condo market, as we discussed previously in this post about why CityPlace is a good option for some buyers. But I digress…
Liberty Village condos have on average enjoyed a nice, slow but steady value appreciation since the community’s inception. It’s harder to make a really high return on your investment here versus some other Toronto neighbourhoods but it’s also much easier to buy into from an affordability standpoint and so it’s a great option for many first time buyers and young couples on a budget.
With prices continuing to rise and way too many micro-sized condos rising up in the core, the value proposition of some of Toronto’s most affordable condo communities like Liberty Village is going to sway more and more buyers who may not have considered them a decent option initially.
I can’t tell you how many first-time buyers we’ve worked with that said immediately – “no CityPlace or Liberty Village” in our first meeting together and then ended up buying there, not out of desperation but because they had a misconception about these neighbourhoods and the condo buildings that they house.
Also, frankly, most first-time buyers with below-average budgets have a rude awakening when they realize how few options they have under the $400k mark, despite surges in building development and condo listings.
So, if you’re a first-time buyer or a buyer on a very tight budget looking at various condos for sale in Toronto, don’t discount some of these affordable condo communities. They may not have the high-end brand of a Yorkville or hip image of a Roncesvalles or Leslieville, but there are some real gems to be found where you may not expect them.
Some of the best condos in the city are 15+ year old hard lofts like the Candy Factory Lofts, pictured here.
Condos are popular for a number of reasons – proximity to work and play, turn-key living, amenities, being steps to transit, etc. But the biggest reason behind the rise in condo living in Toronto is because they’re affordable. Or at least “more affordable” on average than houses. And even though affordability is waning in many neighbourhoods, there are still an incredible amount of affordable condo options in Toronto.
What’s become the biggest issue in my opinion is that condos are just too dang small to meet the needs of a changing buyer profile. The average size of a Toronto condo has declined significantly in recent years while the market has shifted to older, multiple-person households.
Before house prices went crazy, it was really a combination of investors looking for rental properties and first-time buyers (young singles and childless couples) who were buying up the majority of condos in the core. But we’re now seeing a much wider demographic calling condos home.
The downsizer Baby Boomer market is a massive one and it’ll continue to grow over the next decade. And although they’re downsizing, active seniors don’t want to move from a large home to a shoebox. They want to continue to host big family dinners and have enough room for prized possessions.
We also have a ton of families with young children who are having to stay in condos longer because they’re priced out of the housing market. And we have a lot of first-time buyers who are in their late 30s or 40s – forced to rent much longer than anticipated in order to try and out-earn / out-save the market – and they’re not looking for the same kind of starter condo or neighbourhood vibe that a twenty-eight year old is.
Although 11 years is hardly old for a condo building, the principle still stands here. This is the former unit of one of our Condos.ca Realtors who opted for more square footage than his budget would have provided him with elsewhere, in the form of a Liberty Village townhome. He then customized it through renovations into a beautiful space.
All of this is driving the demand for larger condo units. The catch is that the average size of new build condos has decreased dramatically and, although condominium townhomes are one of the hottest property categories right now, prices on some new build townhouses are getting out of hand – you might as well buy a semi-detached freehold house.
This is creating a buyer movement towards older condos that tend to offer larger spaces at much lower cost per square foot prices than the average, slick, new builds and trendy townhomes.
Coupled with this trend is going to be a rise in condo renovations. The market over the last decade has almost conditioned buyers into thinking that a condo has to be updated and turn-key direct from move-in. But if you’re willing to live through a renovation, it can be a great alternative because a) you’re almost always going to get a far better deal on a cost per square foot basis buying an older, unrenovated place and b) you can finish the space to your tastes and needs.
The key here is in maintenance fees. Maintenance fees are typically determined based on unit size and so automatically, you’re paying more for a larger unit. But older buildings also often require more work to be done and therefore are constantly topping up their reserve funds.
Not all older condos have high fees, however. If you’re in the market for a larger, older condo, we can take you through some good options.
Also, if you haven’t already signed up as a Condos’ Insider (it’s free), you can sign up here and you’ll gain access to all of our building data. Find the condo you’re interested in and you’ll see current maintenance fee costs along with trends – how fees have changed over time so you can note any red flags as well as how they compare to the average for the area.
Established neighbourhoods like Rosedale often offer older condo buildings that contain a number of larger units appropriate for families or downsizers – and that doesn’t have to mean crazy high maintenance fees.
Two of the most talked-about class-action lawsuits currently underway are from buyers at Emerald City in North York, pictured above, and six50 King, pictured below, both of which say builders advertised falsely and did not deliver on the promises made at time of purchase.
The Toronto lawyer behind many of the big condo class-action suits is Ted Charney. You can read more about him in this Toronto Star article by Susan Pigg. Pigg writes:
“So far, most of Charney’s class actions have focused on material defects and compensation for owners banned from using balconies that are their only backyards. But now emerging is a new class of cases which he describes as breaches of contract or misrepresentations. Basically at issue is what the glossy preconstruction sales brochures promise and what ends up being built.”
With the new Ontario Condo Act passed as law but not yet in effect, we’re in a strange transition period. New protections are imminent for buyers of pre-construction condos in Ontario but what about all of those who’ve been snowed the last few years?
We think more condo owners closing on new builds this year are going to use the upcoming changes to condo law to spur a lawsuit if they’re unhappy with their units upon inspection / move-in. This may be in the form of smaller, single owner suits or in large, class action lawsuits.
Legally, it’s hard to argue for benefits that are not yet in place. However, with protections just around the corner and other cases in Charney’s portfolio paving the way, I think a lot more unhappy buyers are going to realize that what’s happened to them isn’t fair and it’s not right. We may see more buyers moving to sue rather than just accept a sub-par unit as a learning moment in the adventures of real estate.
We’re not saying all pre-con is bad and that you should never consider it. But we’ve always said that, in many if not most cases, the value proposition just isn’t there anymore in comparison to re-sale and that the risk to reward ratio is out of whack. Have a read of our previous series on the top 10 mistakes buyers of pre-construction condos make for more on this.
All of that said, there are scenarios where buying pre-con makes sense. In particular, if you’re 100% set on a specific location and there are no decent re-sale opportunities there within your price range. Then it becomes a case of evaluating your pre-con options, working with a seasoned condos Realtor.
Find yourself an agent who knows the reputation of the builder and has extensive experience negotiating pre-con contracts so that a) they’re ensuring you fully understand what you’re getting into / the risks you’re assuming and b) you’re getting the best deal possible.
By “best deal” we mean both in terms of purchase price and capping of fees as well as value-added extras that the builder’s Realty team is never going to offer to a buyer who just walks in off the street, unrepresented.