Prices Linked to Heartstrings, Not Predictions

Earlier this month, a report from TD Economics said that prices were headed for a “correction,” to the tune of about 8% by the end of 2015.

The report says 70,000 units set for completion this year and next is a “striking” number and that buyer demand appears to be dwindling, but they also say that a majority of these units are already sold, with only about 9,000 left. Their wording (“while” a majority have been sold, roughly 9,000 “remain to be absorbed”) makes it sound dire, but that’s only about 13% left unspoken for on units to be completed over the next two years.

In its recent write-up of the report, Global News said, “But even among sold units, some suggest an unknown number of owners or investors are facing challenges when it comes time to secure a final loan to close the deal and take ownership.” I didn’t go to journalism school but I’m pretty sure “some” is not a reliable source, and “unknown number” is hardly scientific.

Urbanation believes the rate of completions is slower than TD estimates, so many of these units won’t be done until even later, which would maintain demand and offset any “oversupply.”

One concern expressed by the report authors is that investors are holding a “significant” number of units. According to Global, while the report says a “good portion” of the 70,000 new units will end up on the market, the number won’t be “to the point of exerting extreme downward pressure on prices.” Urbanation says the overall number is likely to be closer to 40,000.

The report says that the downtown core will remain an area of condo strength, with sales suffering in the outskirts and the 905, which typically produces a fairly small number of condominiums annually anyway. Current projects in Etobicoke and Scarborough have very reasonable starting prices for new condos, some as low as mid-$100s, which it seems to me should make them highly desirable for those who can’t shell out downtown prices but still want to be on the TTC — in other words, end-users. And that’s supposed to be a good thing, right?

Once again, I spent my morning reading news reports and I’m left with less clarity than when I woke up.

The truth is that investors will always try to play the market, and end-users will always buy with their hearts. While, for example, detached home prices rose 12% in the past year, the number of sales fell. That means, largely because of our city’s growing up rather than out, the availability of Toronto detached properties is outstripped by demand, and desperate buyers are ponying up whatever it takes.

Last month, Toronto Life ran a story of a well-renovated Dovercourt Road property that sold for $900,189, well over its $799,999 asking price. According to the agent, it’s one of the first renovated properties to sell in the area, which is likely a good sign for the neighbourhood. Once the revitalization begins in the city proper, it usually rolls along pretty well. Think Leslieville.

But it’s not just a good reno that makes for a bidding war these days. This month, the magazine features a dilapidated west-end fixer-upper at Queen & Roncesvalles that went for more than $150,000 over its $649,900 asking price. That’s in spite of even the listing agent’s saying it’s “not for the faint of heart” and telling looky-loos to leave the kids at home. The bathroom looked like someone tossed in a Molotov cocktail and shut the door.

Such is the lure of anything even near downtown. On BlogTO today, there’s a home in Scarborough, just above the Bluffs on a ravine, listed for not much more than the $900,000 for which the reno sold. This one is a pristine Tudor (a little eccentric, but beautiful in a Sherwood Forest sort of way), on a 50 x 173 ft. lot, with three bedrooms, three baths, parking for four, and a stunning backyard with a large deck over the garage.

It all proves that when it comes to real estate, there’s no calculating emotion. As long as people want to live downtown and own homes of their own (and those are two trends that don’t seem to be fading), prices aren’t going to dip significantly. If they want it, they will pay.