2011 IN REVIEW:

At the start of 2011, I predicted a slow first half followed by a steady growth July onwards with a year end of 10% valuation increase. Other forecasters as indicated in certain articles stated a drop of 10-20% by year end.  How could I be off by as much as 30%, it did not make sense to me? I didn’t believe that prices were overvalued by 10-25% as international experts and local experts were claiming. What I did not understand was that most experts keep talking about national markets and had a tendency to reflect on not only the value of growth in Real Estate in other countries but also their economic status.  Like this was sure to effect that of our own status.  Seems like a good conclusion, if you were in most countries around the world you might have been correct with this assumption.  Now that the results are out and we have already recognized over 8% increase in the value of property one of two things are going to be evident.  December of 2011 will be the worst month in the history of Real Estate and we will lose 30% of our value and the so called or professed experts were right,  or,  they will report on the current facts and fail to mention their  ridiculous claims that they made last year.  These so called experts are writing that 2012 will be steady with little to now growth in real estate value.  This should  mean according to their track record that 2012 will see an increase in values by 30-40%.   This is doubtful but certainly not impossible.  Refer to my article Feb/2011

I think that it is more important to look into the underlying reasons why they may have been motivated to write these articles.

1)       Help to push up volume in stocks, mutual’s, and bonds

2)      Attempt to cool the Real Estate Markets and keep affordability to end users

3)      Work on another agenda that we might be unaware of
Refer to my article Feb/2011

WHAT TO LOOK FOR IN 2012:

First I believe that Toronto real estate in 2012 will be exciting.   Mortgage rates will fluctuate slightly but nothing to worry about. Governments heading into elections are unlikely to announce more taxes for consumers, and the economy will slowly gain strength in the Toronto Region which will mean both reported & unreported incomes will be higher.

What makes the downtown condo market unique is that there are really two components: the resale market and the pre-construction market. The resale market is dominated by end users, the pre-construction by investors. Over the past year, the investor mix has switched to mainly ‘all cash’ buyers from Asia and the Middle East.

Downtown condo prices are still relatively cheap based on other major cities of Canada and other major cities in the world.  In 2011 we saw a distinctive growth in the value of re-sale and a slow to moderate growth in pre-sale even though we have witnessed a record year in pre-construction volume sales. This will lead to a levelling off on re-sale prices and a spill over into the Pre-sale market which historically is $50-100 per sqft higher than re-sale.  Now that the re-sale has been pushed up, watch for the early race to buy in beginning of 2012 for Pre-sale and big increase in the asking price for pre-sale come spring and early summer.  Sitting on the fence now, you can really find pricing yourself out of the market.  Once big increases are posted, this will make many convinced that they have missed out and will wait for the next drop.  Many investors whom I spoke to while working as an inside developer sales agent from 2000-2008 were convinced that they missed out and were waiting for the next correction.  They could have purchased at $250 per sqft, prices rose to $500 per sqft and for a fleeting moment they dropped in March of 2009 for about a month and a half to $450.  For 10 years they missed out on the opportunity to invest in Real Estate and for the most part they did not take advantage in March thinking it would drop further.  With this way of thinking I’m convinced that they are now priced out of the market, never to return. 

Real Estate Values always go up, in some cases you just have to wait. 

WHAT TO EXPECT IN 2012:

1)      Toronto resale volumes will be the same as in 2011. Prices will increase by 5% to 7%. The best time for investors will be in the first quarter of this year. Most experts will not recognize the strength of the real estate market until the second quarter and report on what has already taken place.

2)      The downtown condo market will see sales volume increasing by 6% to 10% and prices up by as much as 15% most of this increase will be recognized in the first quarter. Condo rental rates will increase by $70 per month on average. The current vacancy rate for rental condos is under 1% and for apartments it is about 2%. Condos are renting in 15-20 days on average. Expect that trend to be trimmed even further in 2012 as we have hit yet another record high in population growth.

3)      Larger condo units are now selling at a much lower price per sqft than smaller ones. Going forward, two bedroom  units will sell for more per sqft than one bedroom units as there will be more demand for those moving up and those willing to share space.

4)      Watch for Assignment sales to become more of a norm as consumers become more educated in the assignment process.  It is expected that since Toronto is the capital of condominiums in North America, that assignment opportunities will grow and this business will develop rapidly.

5)      Once rental rates increase, the price of pre-construction condos downtown will move from $600 to above $700 per sqft. The ceiling for resale units appears to be $690 per sqft. Both markets are very active in the $500-600 per sqft range.  As mentioned before Pre-sale construction should be more than $100 per sqft over the value of pre-owned condos at current market values.  Remember the cost of building something for 2015 will be much higher than the cost of building a unit 5 years ago.  Resource price has increased and so have development levies, the only reason that you have seen low pricing in Pre-sale was because of the supply offered in 2011.  Once met, we will be introducing something new to most Torontonians, “artificial inflation.” This is what has driven the market values up in the U.S. and most parts of the world.  This is primarily the reason why those values have decreased over the past 5-6 years.  Toronto did not see artificial inflation, just inflation, like the increase in the cost for a loaf of bread.   Real Estate like all other investments at its core is all about supply and demand.  Once we have build up on most if not all of the infill sites for the down town of Toronto, you will witness an increase of value due to artificial inflation.  It’s like this, rather than developers having 20,000 units to sell, think of it like now it becomes what you want to sell your unit for, and others like you.  Supply and Demand will be the major factor in determining where the prices will end up and in my personal estimation we are just over half of where we should be in pricing because of the oversupply.  Toronto has build and sold more condominiums than any other city in North America every year over the past decade.  More people are moving at the highest growth rate here to our wonderful city.  The city does not have the capacity to grow any more in land mass for the downtown core yet everyone will be attracted to this area.  Prices must go up to stabilize a healthy environment for home value in this area and this will only be recognized once supply slows down due to limitation on sites.  Don’t count on these year after year record increases of population to diminish.  Toronto has too much to offer.  More Demand Less Supply, Accounting Principles 101 Prices will increase. 

The only question becomes, where do you fit into this equation?