Toronto Income Property Newsletter – January 2008

Happy New Year everyone! I’d like to personally wish and your family all the best. May all your hopes and dreams come true in 2008 and may you have a truly memorable year.

This month’s newsletter is in two parts. The first part is my annual prognosis for this New Year and what we might expect to see in the Toronto income property market. In the second half I will highlight the ups and downs of the income property market in 2007, illustrating a few sales that still boggle my mind.

The Toronto real estate market stayed strong in 2007 setting another record breaking year. Multiple offers were the norm for quality income properties in the Central Toronto core, with sellers continuing to hold the upper hand. Regardless of cap rate or investment return, duplexes and triplexes traded on land value and the price of comparable single family homes in the same neighbourhoods. For most of the year I discussed in my newsletters the likelihood of this market sustaining itself and how it seemed to be impervious to many of the dilemmas happening stateside. The real estate market in many American cities crashed in 2007 leading experts to ponder how long before a ripple effect would happen in Canada.

My opinion is that the income property market in Toronto for 2007 is going to continue to be strong and not look too different than what we have seen over the past few years. The demand for quality properties in Tier 1 locations will carry on and sellers will still see top dollar for well priced properties. Despite the situation in many key U.S towns, I believe that Toronto is different and there is still room for prices to even go up more. Remember that Canadian house price gains have paled by comparison to other major cities. Toronto showed upwards of 60% increases in prices in certain areas. While this may seem like a dramatic spike, consider that prices in London England went up 270%. In many U.S. cities which are now showing signs of trouble, prices more than doubled. That didn’t happen here. Yes, there were some big numbers but they were still modest compared to some other markets in North America.

The reason why the U.S. market is tanking primarily has to do with poor lending practices. The sub-prime mortgage market has been exposed and it is now clear that many unqualified people were given mortgages. That didn’t happen up here either. Anyone who didn’t have at least a 20% deposit had to insure their mortgage which left lenders (primarily banks) with limited options on the types of mortgages they could offer. As such, riskier borrowers were not given no money down, 100% financed products en masse. Sub-prime mortgages in Canada were less than 5% the total number of granted mortgages. Quite simply, mortgage delinquencies in Canada have been (and I expect will continue to be) far less than in the U.S. In fact, Canadian mortgage growth is running at a 17 year high despite continued talk of a credit crunch.

There are also macro-economic forces to look at when contemplating the real estate market in Toronto. It is too early to tell what the implications of our soaring dollar over the past few months will be, but I think that it will hit the manufacturing sector long before we see it adversely affect the housing market. Also, take a look at all the condo development in Toronto in 2007. Condo sales in Toronto now outpace every type of real estate – this demand has quite a lot of legs left I believe. Consider that agents and consumers are camping out for days in order to get first crack at some of the new projects. Foreign investors like Toronto, that’s for sure. If we were on the verge of a slow-down, it’s not likely that this fervent development would be at an all-time high. Our downtown has dramatically changed over the past few years with all the new condo developments and experts seem to agree that this phenomenon will continue for the foreseeable future.

I personally would like to see a little more reasonableness go back into the Toronto income property market. I have based my business on duplexes and triplexes and it continues to be hard to make a case for cap rates under six. If the market does slow down a touch, (selfishly speaking) it would be great for me. All of my investors, renovators and speculators could come out of the woodwork as it would be safe to come out and play again. Yet unfortunately I don’t see that happening in the short term. I suspect that the bulk of my business will continue to be with owner-occupiers as this still makes the most sense for buying an income property.

I’d now like to present my annual wrap-up of income property sales in the Toronto Central core for last year. As far as I know, there isn’t a formal breakdown of residential resale income-producing properties available elsewhere. What I have done is taken four key geographic areas and looked at all the 2007 sales with three or more kitchens. Unfortunately, this eliminates all the proper duplexes but I don’t like to count houses with basement apartments as income properties, thus the minimum three kitchens. So please take this as a rough, highly unscientific approach to income property sales.

Downtown C01, C08 (South of Bloor) Sales under $600,000

Field Count Mean

(Average) Median Mode Low High

List Price 99 $497,790 $499,000 $599,900 $272,900 $599,900

Original Price 99 $501,234 $499,000 $599,900 $290,000 $649,000

Sold Price 99 $506,709 $520,000 n / a $270,000 $725,000

% List 99 101.73 99 98 92 124

Taxes 97 $3,317 $3,307 n / a $1,570 $4,702.65

Bedrooms 99 4.2 4 4 2 8

Washrooms 99 3.1 3 3 2 5

Days On Market 98 26 14 9 1 185

Downtown C01, C08 (South of Bloor) Sales over $600,000

Field Count Mean

(Average) Median Mode Low High

List Price 66 $814,591 $709,450 $649,000 $609,000 $1,499,000

Original Price 66 $826,977 $747,000 n / a $609,000 $1,499,000

Sold Price 66 $786,968 $700,000 n / a $550,000 $1,350,000

% List 66 97.2 97 96 77 122

Taxes 63 $5,174 $4,401 $3,564.38 $2,064.69 $9,901.51

Bedrooms 66 5.2 5 4 3 9

Washrooms 66 4.1 4 4 2 8

Days On Market 66 27 13 8 2 147

East E01, E02, E03 (Riverdale, Leslieville,The Beach), Sales under $400,000

Field Count Mean

(Average) Median Mode Low High

List Price 67 $333,633 $339,000 n / a $224,900 $399,900

Original Price 67 $336,679 $339,900 n / a $224,900 $418,000

Sold Price 67 $328,015 $326,500 n / a $230,000 $430,300

% List 67 98.51 97 96 86 119

Taxes 63 $2,494 $2,407 n / a $1,577.76 $3,681.01

Bedrooms 67 3.8 3 3 2 9

Washrooms 67 3.3 3 3 2 6

Days On Market 66 29 16.5 n / a 1 102

East E01, E02, E03 (Riverdale, Leslieville,The Beach), Sales over $400,000

Field Count Mean

(Average) Median Mode Low High

List Price 100 $574,543 $529,000 n / a $405,000 $1,400,000

Original Price 100 $621,014 $534,200 n / a $405,000 $4,899,000

Sold Price 100 $567,870 $520,400 n / a $352,000 $1,375,000

% List 100 98.87 98 99 72 123

Taxes 99 $4,281 $3,736 n / a $2,305.08 $16,015

Bedrooms 100 4.3 4 4 1 9

Washrooms 100 3.7 3 3 2 11

Days On Market 96 25 15 7 1 177

Midtown C04, C09, C10 (All sales)

Field Count Mean

(Average) Median Mode Low High

List Price 42 $771,250 $699,950 n / a $388,000 $1,499,000

Original Price 42 $775,345 $699,950 n / a $388,000 $1,499,000

Sold Price 42 $764,824 $698,000 n / a $380,000 $1,467,000

% List 42 98.98 97.5 n / a 85 143

Taxes 42 $5,755 $4,935 n / a $2,770 $14,000

Bedrooms 42 5.1 5 4 2 9

Washrooms 42 4.2 4 3 3 11

Days On Market 41 26 15 n / a 1 156

West side W01 (All sales)

Field Count Mean

(Average) Median Mode Low High

List Price 95 $578,478 $559,000 $599,900 $200,000 $1,149,000

Original Price 95 $584,092 $569,900 n / a $200,000 $1,149,000

Sold Price 95 $582,304 $551,000 n / a $250,000 $1,450,000

% List 95 100.52 99 98 88 132

Taxes 94 $4,107 $3,812 $3,780.41 $1,800 $14,743

Bedrooms 94 4.5 4 4 2 9

Washrooms 94 3.6 3 3 2 8

Days On Market 94 30 13 9 1 241

Here are some of the mind-benders of 2007, all the result of crazy multiple offer situations. I was actually in on a good number of these properties but I didn’t win them for my clients so I don’t mind showing you how crazy it can actually get out there. Remember it’s not often about the bottom line investment. When someone finds a property that they like, sometimes returns are discarded. Take a look at these:

22 Rachael (3 Suites in Rosedale): Asking $995K. Sold $1.425M

430 Markham (4 suites in Annex): Asking $899K. Sold $1.1M

2 Lonsdale (3 suites in Midtown): Asking $969K. Sold $1.121M

52 Grace (3 suites in Annex): Asking $549K. Sold $653K.

167 Shaw (4 suites in Little Italy): Asking $589K. Sold $725K

29 Kintyre (3 suites in Leslieville): Asking $439K. Sold $541K

118 Marion (5 suites in Roncesvalles Village): Asking $829K. Sold $965K

There were countless other income properties that traded for over-asking price. My point here is to show you that so long as people are prepared to pay six figures over list price then there’s a long way to go before the market starts to sour.

I look forward to keeping in touch with you over the upcoming months. If this is your year to think about an income property or you know of someone who may be interested, please send along my name. Your referrals are always greatly appreciated.

Take care everybody.

P.A.