Q2 Market Summary - What's In Store for Q3?

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Resale Highlights Q2 2022

  • Condo resale prices in Q2 dropped 4.9% compared to Q1 2022. However, prices are still up 7.4% compared to Q4 2021 and up 9.3% year-over-year.
  • Condo correction has been mild compared to low rise properties, with homes down 10.8% quarter-over-quarter in the GTA with 905 markets seeing prices decline 20%
  • Looking at a 10 year period cumulative growth for condos sits at 131%
  • Months of supply sits at 1.9 months. Comparing this to the Q2 period before COVID months of supply sat at 1.8 months and the 10 year average is 2.5 months.
  • Terminated listings rose 51% in Q2 as investors shifted focus from selling to taking advantage of the hot rental market.

Resale Market Analysis

While resale prices are in flux with markets in the GTA and Toronto seeing varying degrees of price correction, there is no denying that the suburbs and regions beyond the city limits are seeing the greatest level of price correction. Price appreciation will never be constant from year to year, it has not been that way in the past and will not occur moving forward. This is why looking at a 10 year average is key to understanding how well your investment property is performing, since as we've discussed many times over, real estate investing is a long term play and short term gains and losses should not be a focal point. A 10 year cumulative growth sits at 131% and if broken down further this translates into 13.1% yearly price appreciation.

While the resale market slowed as we came to the end of Q2, it was not necessarily due to a lack of interested buyers, rather, owners pulled their listings because of the red hot rental market that drove investors to switch their focus from selling to renting. In fact, terminated listings rose by 51% in Q2 as investors looked to capitalize on the rental market that has come back to life and surpassed the pre COVID numbers. While interest rates rose and could translate into increased carrying costs for some, the fact that the rental market has been red hot helps to cover those increased costs for owners.

The strength of the rental market in the city prevented panic selling by investors, which helped to keep supply stable and therefore resulting in a much lower price correction compared to the suburbs, which have been impacted the most in 2022.

We do not always include pre construction details when discussing the resale market, however the two markets are linked as pre construction suites will translate into resale inventory in the future. Speaking to this point, current months of supply is at a very healthy level, in line with pre COVID numbers and well below the 10 year average. Due to rate increases and increasing costs for developers to construct, this has resulted in a recalculation of the expected number of units to come to market. Initial estimates had 35,000 new units releasing in 2022, 16,000 have hit the market so far with less than 10,000 expected for the rest of the year resulting in roughly 10,000 shortfall by the end of the year.

With fewer suites being released now this will translate into fewer completions in the future adding to and supply/demand imbalances that we have seen in the city. With fewer suites being available to occupy in the near future this will place upward pressure on rental prices as well as resale. Population increases from the immigration targets set by the federal government will also cause increasing demand for housing in Toronto and the GTA and with condos being the most affordable option, demand from this group added to existing demand can only result in prices increasing in the future.

Rental Update July 2022

  • Condo rental inventory dropped to a record low of 0.3 months of supply with time on market falling to a low of 9 days. Low supply and quick transaction time signals further upward pressure on rents in the near-term.
  • Average rents rose sharply in July, up 3.1% month-over-month. In the past 2 months alone rents have risen by 7.9% or by an average of $199 per month.
  • At a record high average of $2,717, condominium rents increased 19.3% year-over-year
  • A 42% share of leases during July transacted for higher than their asking rent, by an average of $46 per month.
  • The quarterly rental rate growth reached 5.9% over Q1 2022, which represented the second highest quarterly increase recorded.
  • While studio and 1 bedroom rental rates took the hardest hit in the first year of the pandemic, these suites have recorded the fastest annual rental growth rates of 25% and 19% respectively.

Rental Market Analysis

Rental growth in the city is hitting record highs, which is certainly a good sign for investors, as this means more money in your pockets to help cover existing and possibly increasing carrying costs with a suite owned. So while yes paying more for the suites owned is not an ideal situation, the strength of the rental market in the city helps to alleviate some of that pain and there are no signs of the rental market slowing down anytime soon. In fact, the strength of the rental market has impacted investors' decisions to sell or rent their properties, the cancellation of listings points towards investors holding and renting properties.

One strong indicator pointing to the long term strength of the rental market, would be the inventory levels, which sits at just 0.3 months of supply. With low supply available, especially in the core and with the summer rental season about to kick into gear, you can see how the month-over-month growth numbers are not likely to drop, rather we could be in a position to see further record breaking growth by the time that the Q3 numbers are made available. With low supply and high demand, this will continue to place upward pressure on prices moving forward.

The strength of the rental market helps to highlight what we have been saying since the start of the pandemic. Once the city reopens for business, as it has, combined with international students returning to campuses the strong rental market we were witnessing before the pandemic will come back just as strong, if not stronger. Cities like Toronto are where the demand exists for rental suites and this translates into strong returns and a market that sees high year-over-year increases to help offset any increasing carrying costs that owners may have.

In Summary - Buy Now!

With resale prices still seeing year-over-year gains and panic selling not occurring that would lead to a sharp drop in prices, the time to buy is now before the market stabilizes and we begin to see month-over-month price gains as we did throughout 2021. As discussed above, the resale market is still up 9.3% year-over-year and when looking into the pre construction market we can see that year-over-year sold prices are up 20%. Even if FORMA by Frank Gehry is removed from calculations, which sold over 400 units at above $1,900PSF, the year-over-year increase still sits at 16%.

Sitting on the fence and waiting to see what will transpire in the near future will only result in you paying more for properties, so why wait, capitalize on the available offerings. There are deals to be had, while pre construction prices wont come down and re-sale is expected to level off and begin to see gains once again, developers have been willing to negotiate with us on deposits for our clients, resulting in lower deposits to be paid and in the end less capital to invest.

Contact Us ASAP - Let's Put a Personalized Plan Together

This is a temporary opportunity for people with access to capital. If you’d like us to review your portfolio and make recommendations regarding what to keep and what to sell to access funds and take advantage of current deals in the market, contact us now. The bond yields are indicating that rates will be lowered early next year. If you’re looking to take advantage of the current shift, we can help. But be warned: this won’t last long. The time to buy is now.