Toronto Income Property Newsletter – January 2009

Happy New Year everyone! I’d like to personally wish and your family all the best for this upcoming year. May all your hopes and dreams come true in 2009.

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 a few income property sales in 2008, the year where we saw our market finally start to slow down after several years of feverish activity.

Last year was quite an economic ride. As we start this year, the country (world?) is in recession, gas prices have dropped to almost half of what they were last year and the Toronto real estate market (like many other towns) is in a slump. Next month I will review the final numbers to see how far sales and prices dropped from 2007 to 2008. In October and November, we saw near 30% declines in the number of year-on-year trades in the city, the first time there was ever a significant drop in activity this century. Naturally, the crazy market with over-inflated prices and silly multiple-offers had to end some time. It just seemed to happen rather quickly, but really the economic troubles in the U.S. started before the summer, so the indicators that trouble was heading our way were there.

Despite the recent stabilization in the financial markets, which followed the agreement to inject vast sums of taxpayers’ money into many of the country’s biggest banks, deflationary forces are still ripping at the U.S. economy: There’s the housing slump, an unprecedented collapse in consumer confidence, and a global downturn that is getting more severe by the week. In addition, a reckoning in hedge funds and private equity firms is just starting, and the ripples (and potential tidal waves) of the banking crisis are just beginning to hit the rest of the U.S. economy.

Having buried their heads firmly in the sand for much of the past year, most professional economic forecasters are now predicting a moderate recession that will last until the middle of 2009 – a consensus that could well prove as overly optimistic as the previous one, in which the U.S. was expected to avoid recession altogether. Even allowing for another significant stimulus package sometime in the spring, consumer spending, business investment, and exports all seem set to fall throughout most of next year, which would rule out any meaningful recovery. Given the pattern of last year’s events, I’d say that here in Canada we’re not as prone but we do feel the effects of the larger economic forces happening in America. If the housing markets in the major states start to pick up this year, then our market will be fine. I really believe that we’ll get a glimpse into how this year will unfold by looking at how fast the January real estate business in Toronto starts to unfold.

I personally am ecstatic to see the bottom lines improving in 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 properties that don’t justify themselves on the numbers. All of my investors, renovators and speculators are looking to come out of the woodwork as it seems be safe to come out and play again. If the prices drop, say 10%, but that resultant drop leads to even a 1% increase in your bottom-line cap rate, then income properties will be worth considering as long-term investments. At this moment, there aren’t a whole lot of great investment properties out there in the Central core, but presumably they will hit the market in the upcoming weeks without the previous excitement of previous years. The rental market has been and continues to be very good so you never have to be worried about being vacant for too long a time. Let’s hope that Sellers have realistic prices in mind this year and the listing agents understand that income-generating properties have to make some sort of fiscal sense. Let’s also hope that buyers are clever enough to pounce on these properties when they come around, since there are never enough of the good ones to go around.

One last point: some buyers are thinking that they should wait until prices drop even further. It is entirely possible that we are the low point of the market right at this moment, and that prices and demand will pick up in January. A lot of my buyers were tentative in November and December and I think that there may be a few regrets as we move forward. If you decided to not buy in 2004 because you thought the prices were too high, you likely missed out on a lot of capital appreciation opportunities. If you are looking to buy an income property in Toronto, now is the best time that I have seen in the last decade, and interest rates are still relatively low.

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 2008 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 $500,000

Field Count Mean

(Average) Median Mode Low High

List Price 26 $439,162 $449,500 n / a $369,900 $499,900

Original Price 26 $448,053 $458,500 n / a $369,900 $499,900

Sold Price 26 $445,462 $425,000 n / a $360,000 $615,000

% List 26 101.42 97 94 87 128

Taxes 26 $3,014 $2,954 $3,140.97 $2,285.62 $3,803.68

Bedrooms 26 3.8 4 4 2 6

Washrooms 26 3 3 3 2 6

Days On Market 26 37 24.5 7 4 105

Downtown C01, C08 (South of Bloor) Sales over $500,000

Field Count Mean

(Average) Median Mode Low High

List Price 68 $764,560 $699,900 $699,900 $519,000 $1,450,000

Original Price 68 $768,882 $699,900 $699,900 $519,000 $1,450,000

Sold Price 68 $744,404 $692,000 n / a $490,000 $1,335,000

% List 68 97.85 97 100 90 125

Taxes 64 $4,795 $4,444 n / a $1,590.56 $9,876.54

Bedrooms 68 4.9 5 4 2 9

Washrooms 67 3.8 4 3 2 8

Days On Market 68 37 24.5 7 1 239

East E01, E02, E03 (Riverdale, Leslieville,The Beach), Sales under $500,000

Field Count Mean

(Average) Median Mode Low High

List Price 53 $376,562 $385,000 n / a $239,900 $499,900

Original Price 53 $380,074 $385,000 $429,900 $239,900 $529,000

Sold Price 53 $371,319 $383,000 $415,000 $245,500 $616,061

% List 53 98.4 97 97 87 123

Taxes 43 $2,719 $2,695 n / a $1,928 $3,863.38

Bedrooms 53 3.5 3 3 2 6

Washrooms 53 3.3 3 3 2 12

Days On Market 52 30 23.5 n / a 5 137

East E01, E02, E03 (Riverdale, Leslieville,The Beach), Sales over $500,000

Field Count Mean

(Average) Median Mode Low High

List Price 32 $792,206 $719,900 $799,000 $529,000 $1,750,000

Original Price 32 $798,425 $749,450 $799,000 $499,000 $1,750,000

Sold Price 32 $766,170 $697,000 $525,000 $525,000 $1,650,000

% List 32 97.16 97 97 91 110

Taxes 32 $5,575 $4,856 4855.8 $2,140.64 $25,671.16

Bedrooms 31 5 5 4 1 8

Washrooms 31 4 4 3 3 8

Days On Market 32 30 22 n / a 2 105

Midtown C04, C09, C10, C11 (All sales)

Field Count Mean

(Average) Median Mode Low High

List Price 31 $1,134,619 $869,000 n / a $459,900 $3,400,000

Original Price 31 $1,144,590 $875,000 $899,000 $459,900 $3,400,000

Sold Price 31 $1,129,468 $845,000 $882,000 $443,000 $3,400,000

% List 31 98.35 98 100 76 113

Taxes 31 $7,660 $6,422 n / a $1,988.24 $27,026.61

Bedrooms 31 6.3 7 8 2 9

Washrooms 31 5.2 5 5 3 9

Days On Market 31 33 24 n / a 1 83

West side W01 (All sales)

Field Count Mean

(Average) Median Mode Low High

List Price 65 $600,984 $559,900 n / a $309,900 $1,199,000

Original Price 65 $606,148 $597,000 $799,000 $309,900 $1,199,000

Sold Price 65 $589,161 $559,000 n / a $317,000 $1,199,000

% List 65 98.63 98 100 73 128

Taxes 63 $4,204 $3,940 n / a $2,007 $10,700.24

Bedrooms 65 4.7 5 4 2 9

Washrooms 65 3.7 4 3 2 9

Days On Market 65 33 17 9 1 173

Here are some of the mind-benders of 2008, presumably the results of the last of the multiple offer situations. I actually had offers in on a few 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 for some buyers. When someone finds a property that they like, sometimes returns are discarded in exchange for hopes of future capital gains. In 2009 we likely won’t be seeing near as many of these kinds of transactions:

Take a look at these:

3 Callendar (3 Suites @ Queen & Roncesvalles): Asking $399K. Sold $505K

175 Marion (3 suites in High Park): Asking $499K. Sold $640K

148 Bellwoods (3 suites in Little Italy): Asking $369K. Sold $430K

66 Oxford (3 suites in Chinatown): Asking $489K. Sold $603K.

126 Lee (3 suites in the Beach completely trashed) Asking $799K. Sold $877K

165 Crescent (4 suites in Rosedale): Asking $1.795M. Sold $2.026M!!!

There were other income properties that traded for over-asking price. My point here is to show you that people were still prepared to pay more than asking price if the property was right. Fortunately, there weren’t as many of these as there was in 2007, when the market was at its height. The majority of sales across the board were within 1 or 2% of list price, suggesting that most agents seem to be getting close to where they price the properties. Let’s hope that this continues to be the case for 2009, with prices making more fiscal sense for investors.

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. Also, if you find yourself on the Danforth this year, stop by our store Drysdale & Co. @ 107 Danforth (near Broadview) for great gift-giving options.

Take care everybody.

P.A.