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What does it say that I dedicated Monday’s post to discussing the whole 416 Market, the GTA, different market segments, sales, inventory, and listings, and when it comes to condos, I’ve set aside an entire post on Wednesday?

I almost think that question is rhetorical.

Having already started my “End of 2020” blog-themed posts on the side, I don’t want to spoil the surprise here, but we will be dedicating a good section to exploring the 2020 condo market.

The 2020 real estate market began with condos seemingly increasing in price by 20-25% inside of four months while the freehold market lagged behind in terms of appreciation.  I routinely heard stories about fifteen-offer melees on cookie-cutter one-bedroom condos back in January and February, and it wasn’t uncommon to see even the most unattractive condos in the downtown core attracting 2-3 offers.

It was as crazy a condo market I’ve ever worked in.

Then along came the pandemic, and everything changed.

During the height of the pandemic, I kept tabs on prices, sales volume, and inventory for all property types, as well as absorption rates.  If you look back in the summer as well as the early fall, you’ll see blog posts to this effect, specifically relating to C01 and C08 condos.

Today, I want to pick up where we left off with the August TRREB stats and see how 2020 finished up with respect to condos.

We’ll start with a refresher on the average 416 (Toronto) condo price, and just for context, we’ll go as far back as the start of 2019:

Note that the average condo sale price increased 10.1% from December 2019 to February 2020, but this is the whole of the 416.  Specifically, in C01 and C08, I have said many times, anecdotally, that prices increased 20% in the smaller 1-bedroom segment.

I’ve highlighted the “peak” in February, pre-pandemic, as well as where we currently stand at $640,208 in November, which is off 4.2% since October, and 11.4% since February.

What I find most interesting about condo prices, however, is that they have no kept pace with the overall TRREB average home price.

All market segments were hammered by the pandemic.  Every segment, and the overall TRREB average sale price, dropped substantially from March to April.  And every segment made a huge comeback in May.  However, whereas the overall TRREB average home price continued to climb, the 416-condo price did not

Check it ou:

As you can see, the “bounce back” in May was far greater for condos than for the overall TRREB average: 10.1% compared to 5.1%.

But as the spring led to summer, and summer led to fall, condo prices dropped as the overall average continued to climb.  Considering the overall average includes condos (as well as detached, semi-detached, and rowhouse), I think it’s fair to say that an average of freehold, excluding condo, would show an even larger increase than the 5.0% shown from February-to-November.

So what does all of this mean?

And what does the September, October, and November data tell us, different from the last time we had this discussion upon reviewing the August figures?

Let’s look first at new condo listings in the downtown core (C01 & C08):

September listings were through the roof.

As if the 1,600 and 1,700+ listings that we saw from June to August weren’t eye-popping enough, we saw almost 2,400 in September and over 2,000 in October.

Listings dropped dramatically into November, however, at a rate far larger than we’re accustomed to seeing; 36.7% in 2020 compared to 27.2% in 2019 and 20.2% in 2018.

If sales dropped at a corresponding level, then this means that “months of inventory” would decline, and the balance between supply and demand would be restored.

Let’s take a look at the sales figures:

Hmmm.

Not quite what we expected.

Only 522 sales in C01 and C08 in November, which is down dramatically from October.

In fact, that 30.0% decline from October to November significantly trails the respective declines in 2019 and 2018 of 17.4% and 8.9%.

With inventory declining at a faster rate than previous years and sales declining at a faster rate as well, it seems that perhaps the absorption rate won’t be catching up quite as much as we’d hoped.

Here’s how the absorption rates look in these periods:

You can choose to look at this either as an optimist or a pessimist.

An optimist would note that the bottom figure of 24.9% in September leads to an uptick in absorption rate of 35.0% in October and 38.8% in November which is now higher than it’s been in any month since March.

A pessimist would note that 38.8% is a pittance compared to 68.3% in 2018 or 77.2% in 2019, and that the market has a long, long way to go.

So what could, in theory, help the condo market?

I have long suspected that the weak condo rental market has had a larger impact on the resale market than anything else.  With interest rates as low as 1.5% for a 5-year fixed rate, this should be a bonanza to the condo market!  But with investors on the sidelines because it’s near impossible to rent out downtown condos, and with other investors looking to sell, rather than carry condos vacant, we see a decline in demand along with an increase in supply, and that’s a recipe for a decline in prices!

Let’s look at activity in the downtown core (C01 & 08):

That’s new lease listings, which you can see absolutely skyrocketed in April when the pandemic hit.

This was caused by a number of factors, including job losses, working-from-home allowing people to give up living downtown, a lack of students, and vacancies caused by tenants looking for lower rents elsewhere.

Listings typically do decline in November, as you can see from the blue and orange lines representing 2018 and 2019, however, the decline in 2020 is far sharper!

The same can be noted for condos leased as well:

Condos leased skyrocketed from March to June, then tapered off as we moved through summer and into fall.

There are still more than twice as many condos being leased in Sept/Oct/Nov in 2020 than in 2019 and 2018, but in the end, the “balance” in the market all depends on the absorption rate, which looks as follows:

Do you see that point in November where the grey line passes the orange line?

That’s the very moment when the condo rental market turned around.

The market is still weak, yes.  And this is only one month.  But to see the absorption rate in November of 2020 surpass that of 2019, and almost pull even with 2018, tells me that the market is not only making a comeback but also showing upward momentum.

My colleague had a listing on Western Battery for which he received six offers to lease over the weekend.  SIX!

“The pandemic’s over,” he told me, sarcastically.

But perhaps we should consider the possibility that the rental market is trending upwards?

If that’s the case, and we know that the weak rental market has had a massive impact on the resale market, then should this lead us to conclude that the resale market will follow suit?

It’s really tough to call the “market bottom,” in any market.

As I’ve said, I would love to meet the person who pulled their net worth out of the DOW Jones at 29,000, and then bought back in at 18,000.

So, far be it for me to suggest that market indicators do exist here demonstrating that there’s upward momentum on price in the condo market.

I’m not one for predictions, but I will predict that the average 416 condo price is up over $670,000 by February – that’s a 5% increase.

Agree, disagree, or agree to disagree?

The post What The November TRREB Stats Tell Us About The Condo Market appeared first on Toronto Realty Blog.