Thursday, December 13, 2012

New Press Release Format

Starting in February, with the completion of our Q4-2012 data, we will feature a new press release format. We will include a chart with the current data, as well as historical long-term averages. We will take advantage of our 30 years of data collection on the Toronto CMA condominium apartment market.

You may have had a chance to read a couple of our previous posts, and you've seen that we don't always agree with the data and assumptions made by others in the industry and the media, but we have come to the realization that we are as much to blame as anyone for some of the media's coverage of the Toronto market.

We do not allow our subscriber data to be used by other organizations in their public publications without our consent, and we do not allow our market presentations to be downloaded or forwarded by non-subscribers. We prefer to control the flow of information and make sure the data is presented in its proper context and fully explained. However, we put out a quarterly press release to get our firm's name out there for various reasons, as one would expect a company with a product/service to sell would do. The problem is that we have not done a good job with our mandate mentioned above, putting the data in its proper context and explaining why things have differentiated from longer-term trends in that press release. As you can imagine that getting press/media coverage, and providing data in its longer-term context in two pages does not always mesh well.

Its is the media's job to present the key facts, and like us, do not have the space for all the context, are not giving all the context, do not understand all the context, or purposefully ignore the context to create a more interesting story! We cannot control the last point, but we can help control the first three.

As an example, let's say a doctor told you that 36 people died last year in Canada during a surgery that they wanted to do on you. Well, it wouldn't make it too likely that you would opt for that surgery. If you were told that the surgery had a 94% success rate. Would your opinion change?

When told that the number of unsold units in projects under construction has increased from 5,000 to 6,300 this year, you say wow, that's a 26% increase. However if you were told that 90% of units under construction were sold at the end of Q1-2012 and 89% at the end of Q3-2012, your opinion would likely not change too drastically. If you also know that the number of unsold units in projects that are under construction is often tied to the developer's risk tolerance and less to actual demand in the market, as they have 2-3 years and sometimes longer to sell those (on average) 26 units, it makes a big difference to the perception of that unsold number.

In our last press release - click here - we did not provide the context for most of the data points that we made, and the assumption would likely be from someone looking at that snippet of information would be that the market is substantially down, when in reality the 2012 new and resale market is quite average. As you know, several media outlets do not like average - the real estate market MUST be either in a bubble (when things are going well), or at high risk for a crash (when conditions are softening). 

Lastly we will mention again that any comparisons to 2011 will make 2012 took terrible, the 28,000 new condominium sales were an anomaly that we may not see in this market for some time. To put that figure in its proper context, during the peak boom years in the United States of 2005 to 2007, the metro area of Chicago with almost 10 million people sold 17,558 new condominium apartments in 2005. Cities with similar populations as Toronto did significantly less than us: San Fransisco, 6,085 in 2006; Washington, DC, 8,663 in 2005; Philadelphia, 1,375 in 2006; and Dallas, 824 in 2007 (data from Hanley Wood Market Intelligence). You want a city that was oversupplied, Las Vegas (population of 1.8 million) sold over 18,000 condominium units in 2005!

We will try to keep our data releases consistent and our data accurate. We want our data to be used to make make intelligent, well informed decisions for purchasers, developers, lenders, insurers and suppliers. If we can increase the exposure to Urbanation's poducts and services, all while increasing the newspaper sales, web clicks and listenership/viewership then that should be seen as a bonus.

Monday, December 10, 2012

Still Not Doubled!

It was brought to our attention that the difference in the information presented in the Bank of Canada report and the data we presented in our blog post last week was due to the difference in timing.

We apologize for that oversight, but as such we decided to run some numbers.

At the end of Q3-2012 we had about 10,260 units of unsold supply in pre-construction projects in the Toronto CMA. Let's assume in Q4-2012 that NONE of these projects went under construction, and the lowest absorption rate among existing projects (projects that did not launch in that quarter) was 4% (which was recorded in the middle of the global economic meltdown in Q4-2008). So let's use that 4% absorption rate as a low level estimate of what was sold for these pre-construction units this quarter.

So 10,260 - 410 units = 9,850 unsold units.

There have been approximately 5,100 units launched in Q4-2012, with 363 already under construction (One Park Place). So lets say approximately 4,750 new pre-construction units added in the 4th quarter.

If we include the sales for just two of the 20 plus sites that launched in Q4-2012, we already have 1,000 sales!

So 4,750 - 1,000 = 3,750.

Add  9,850 + 3,750 = 13,600 (still not 14,000).

We obviously know that several projects have started construction in Q4-2012, we know that the absorption rate among these projects will be higher than the quarter depressed by the global recession, and we know that the other 20 sites launched in Q4-2012 will have more than 0 sales.

So again we conclude that the number of unsold units in pre-construction has not doubled this year.

Friday, December 7, 2012

Where is the False and Twisted Info Coming From? - Part 2

This post is a follow-up to yesterday's on some of the false and twisted info that appeared in articles published in the Post and Globe yesterday.

The Bank of Canada and the media have consistently pointed out that there is overbuilding in the Toronto Condominium Market. I wanted to put some statistics and forecasts out there to test that hypothesis.

According to the Statistics Canada, the Population in the Toronto CMA increased by 94,000 persons per year between 2006 and 2011, the previous three Census periods were 86,000, 84,000 and 73,000 people per year. The number of private dwellings in the CMA has increased by 37,000 units per year between 2006 and 2011. By comparison 45,000 units per year, and 35,000 units were added on average per year in the previous two Census periods.

This 2011 population in the CMA increased 9.2% over 2006 according to the Census, with 9.2%, 9.8% and 9.4% increases in the previous three Census periods.

Based on those figures, the average household size has decreased from 2.85, to 2.80, to 2.70, to 2.68 or about 2% on average per Census period (ignoring vacancies and second homes).

So let's make some conservative assumptions, the 2016 population will be 9% greater in 2016 than in 2011 (below each of the increases listed above), an increase of 100,500 people annually. Let's assume that the household size decreases only slightly by 0.6% (the last period was 0.5%, therefore we went with a lower estimate than the 2% average listed in the above paragraph). So with the 2.67 average household size, the 100,500 population per year would require 40,000 new households per year.

Based on Data from CMHC, there were 33,800 housing completions in the Toronto CMA in 2011, and based off their October 2012 figures, there will be approximately 31,500 by year-end in 2012. That's significantly lower than 40,000.

A further breakdown shows that 53% of completions in 2011 were condominium apartments and approximately 40% in 2012. However, based on sales in market over the past couple of years, the share of high-rise condominium will increase to above 60% of total completions.

In 2013, there is the possibility of over 25,000-28,000 condominium apartments completing, however, it is more likely that the absolute maximum would be 20,000 to 22,000 unit occupancies (keeping in mind the most condominium completions the CMA has ever delivered in one year was 16,000 in 2010). Based on data from CMHC under construction info, up to 17,000 'other' housing completions could occur in 2013 (single-detached, semi-detached, row & rental apartment). Guess what, that's still below 40,000!

If the construction industry in Toronto is some how able to deliver 25,000 condominium units in a single year (which many experts in the industry do not believe is possible in the next five years), that's 63% of 40,000, so yes there is a remote possibility that more than 40,000 units could be completed in one year, but that is expected given that other years will be under 40,000 and our 2011 to 2016 estimates are  based on the AVERAGE annual growth in total units.

The way that these articles and reports are written seen to indicate that the overbuilding is a foregone conclusion, that we will be WAY over on what is needed, and from the data we presented, that certainly doesn't seem to be the case.

Thursday, December 6, 2012

Where is the False and Twisted info Coming From?

The incorrect statistics in this Financial Post article today was quite unbelievable, we wanted to set the record straight on some the the data quoted in this article (click here for the article).

The gist of the article is that the Bank of Canada is worried about the financial ramifications of a potential condo market meltdown, however they are basing their assumptions on the probability of such a meltdown on incorrect figures.

Here are the real figures in relation to what was included in the article ~

1) False claim: Since June 2011 the number of unsold high-rise units in the pre-construction stage has doubled.

Actual data: The number of unsold condominium apartment units in the pre-construction stage of development at the end of Q2-2011 in the Toronto CMA was 7,063, that figure increased to 10,261 at the end of Q3-2012. Not exactly doubled.

2) False claim: Unsold units under construction have also increased from fewer than 5,000 at the beginning of 2012 to almost 7,000.

Actual data: The first part is accurate, there were 4,915 unsold units in projects under construction at the end of Q1-2012 in the Toronto CMA, but that increased to 6,357 at the end of Q3-2012. Is 6,357, almost 7,000? That is a little bit more than a rounding error.

Because the total number of units under construction increased drastically, the increase in unsold units represents a drop from 90% sold to 89% sold of units under construction.

The Bank of Canada needs to understand that several developers raise the prices of their units significantly and close their sales offices when construction starts (and sales subsequently slow) as they believe they can achieve a premium selling these units when the project is completed in two or three years when buyers can walk through the units. The probability that pricing is below 2012 price levels in 2015 is very low, and even if that occurred, many developers would lease the units until the market improved, as the average project at occupancy is almost 95% sold. Assuming even that demand for condominium rentals was halved, we would still be in balanced market conditions in that sector.

3) Twisted claim: The prices of high-rise units have flattened while their sales have declined, suggesting that demand is slowing while the supply of unsold units (including those not built) is still strong.
Actual Data: The average new condominium apartment sold index price in Q3-2012 was $530 psf in the Toronto CMA, a 7% increase annually. The media was calling the 9% year-over-year pricing a bubble in 2011, but 7% annual growth in 2012 is now flattening out?

They are correct that sales have declined, but declined from the highest sales year on record. It's like saying a guy that is 6'7" is short because you are comparing him to Shaquille O'Neal! 2012 will result in approximately 18,000 to 19,000 new condominium sales, below the five year average, but above the 10 year average. Likely a welcome relief for the construction industry, that is trying to catch up with the sales.

Unsold supply decreased in Q3-2012 in comparison to Q2-2012 in the Toronto CMA and is still represents just 20% of the total universe of suites, below both the five year and 10 year averages!

We hope the Bank of Canada has a look at this post!

Thursday, November 22, 2012

How does the 2012 New Condominium Market in the Toronto CMA Stack Up Historically

It is often difficult to put the 2012 new condominium apartment market in context as it relates to the past decade of activity in the Toronto CMA. There is often confusion when figures are compared to record highs or record lows for sales and pricing, or misunderstanding as it relates to unsold inventory in the market and what that really includes.

We are putting together notes as we formulate our 2013 forecast for the market, but figured we might as well share a few of the points with you:

      1)      Between 2002 and 2011, the new condominium apartment market in the Toronto CMA sold 17,100 units on average annually. In 2012, the market is expected to absorb approximately 18,000 units.

      2)      Between 2002 and 2011, the average quarterly sales rate has been 78% in the Toronto CMA new condominium market. At the end of Q3-2012, 80% of the active units were sold (68,926 of 86,108).

      3)      Of the 17,182 units of unsold supply at the end of Q3-2012 in the new condominium market in the Toronto CMA, 60% of those units were in projects that have not started construction. The ‘standing inventory’ or unsold units in occupying projects or projects registered for less than six months (that are still developer owned) was at just 562 units, or 3% of the overall total as of the end of the third quarter. The typical project is between 90% and 95% sold at occupancy, and many developers choose to keep several suites until occupancy because the feel they can sell them for a premium at that time (prospective buyers can view the completed suites) and avoid the additional cost of keeping a sales office open once the development has achieved a certain sales threshold.

     4)      How does the unsold supply of 17,182 units break down by project? Often the assumption is a lot of higher priced, larger product in the big downtown developments. In reality nearly 1/3 of the unsold units are in projects with average unsold index prices of between $400 psf and $499 psf! The majority of the projects in this price range are suburban projects, or are larger scale ‘416’ projects in less desirable locations. By comparison, there is less unsold supply in projects with unsold pricing of $600 psf to $800 psf. This makes sense, as the boom in condo sales resulted in developers bringing on bigger projects in “B” locations than they would in a less successful market. When the market normalizes, future projects in B locations are cut down in scope, or launched as ground-oriented projects, such as stacked or traditional townhouses. During these ‘normal’ sales periods, buyers and investors tend to gravitate towards A locations closest to transit, employment and amenities.

      5)      How does this peak in unsold supply compare to the previous peak? In Q4-2008 there were 17,610 unsold units in the Toronto CMA new condominium market of 65,186 active units. In Q4-2008, 28,776 units were in pre-construction (44% of the 65,186 active units); at the end of Q3-2012, 28,820 units were in pre-construction (33% of the 86,108 active units). Although there are an identical number of units in pre-construction projects in Q4-2008 and Q3-2012, 43% of the units in 2008 were in projects that were less than half sold, compared to just 25% in 2012. In addition, in Q3-2012, there were 14,000 units in projects that had sold 70% of their suites or more, in comparison to just 11,000 in 2008.

      6)      The average annual sold index price increase in the Toronto CMA between 2002 and 2011 was 6.4%; annual price growth in Q3-2012 was 6.8%. The highest rate during that 10-year period was 12.4% in 2007, during the peak sales market of 2011, the highest annual appreciation recorded was 8.4%. In Q1-1989 the annual appreciation in the new condominium market was 41.9%.

     During the next three weeks, we hope to share more of our notes with you as we prepare out market forecast for next year.

          Urbanation Inc

Wednesday, November 14, 2012

Assignment Survey Cancelled

Urbanation would like to formally announce the cancellation of our assignment survey.

We were disappointed that less than 15 of the 120 developers that we reached out to, ended up providing us data for this undertaking.

We certainly understand how busy most folks in the development industry are, and the time that would have been required to accumulate the information, we also recognize that many developers don't want to release any information that might come back to "bite them in the rear" so to speak. As noted in the previous blog posts, the individual project data was not to be released, just the cumulative results.

Urbanation has no doubt that rampant media coverage of "speculation" in the condominium market and the recent mortgage rule changes (brought on by the worry of condo flipping) have had a major dampening affect on new condominium sales in Q2-2012 and Q3-2012 (both dropping approximately 50% from their respective quarters in 2011) and the 40% decline quarterly in resale units priced above $400,000 in the third quarter.

Based on the responses we did get, the assignment activity was relatively low and there is very little "flipping" of registered units in the resale market, as the percent of units listed by projects during the first quarter post-registration is actually DECLINING in comparison to previous years (for subscribers, see Q2-2012 Condominium Market Survey). Investors are instead choosing to lease their suites in an extremely hot rental market (data from our UrbanRental report), which has seen demand hit recent market highs in Q3-2012:  80% lease-to-listings ratio and a very low 16 days-on-market in the Toronto CMA overall. In the investor heavy zones the results were better, Cityplace (89% LLR & 10 DOM), Downtown Core (84% LLR & 11 DOM), Harbourfront (82% & 12) and Downtown East (82% & 10).

We hope in the future should make a second attempt at this survey, that the development community will co-operate fully. Market information is extremely import, as key stakeholders are making decisions based on these results (or lack of results) that could detrimentally affect residential real estate developers.

Thursday, November 1, 2012

Urbanation's Q3-2012 Press Release - Toronto Condominium Market Results


ATTENTION: News; Financial; Real Estate Media

Lack of New Project launches leads to decline in new condominium sales in q3-2012
Cautious developers hold back and reevaluate pricing

TORONTO – November 1, 2012:  Urbanation Inc., the leading source of information and analysis on the Toronto condominium market since 1981, today released its Q3-2012 market overview.

In the Toronto Census Metropolitan Area (CMA) there were 3,317 new condominium apartment sales in Q3-2012, a decrease of 30% from the second quarter.

“With slowing sales and a record level of unsold inventory in the market in the second quarter, condominium developers reacted quickly by delaying their project launches, especially in the ‘416’ area,” says Ben Myers, Urbanation Executive Vice President. “Just five projects launched in Toronto in Q3-2012, as developers chose to review their pricing assumptions and unit mix”.

The average unsold unit in the Toronto CMA was being offered at $573 per-square-foot (psf) at the end of Q3-2012, an increase of just 2% year-over-year. Unsold pricing in the former City of Toronto remains virtually unchanged from one year ago, rising from $668 psf to $670 psf.

The lack of new site openings in the third quarter resulted in a decrease in unsold inventory from the CMA record high of 18,123 units in Q2-2012 to 17,182 units in Q3-2012. With 20% of the 86,108 units (341 projects) unsold, the share of unsold inventory in the Toronto CMA remains below the 10-year average of 22%.

With condominium apartment construction starts outpacing completions for the 8th consecutive quarter, units under construction in the CMA have set another record high at 207 projects and 56,336 units.

“The number of unit completions in 2012 are well below our forecasts, as construction delays have pushed back occupancy on a number of projects” adds Myers. “The average project that completed construction in 2012 took 3.85 years from sales launch to occupancy, compare that to 2003, when the average took just 2.68 years for a similarly sized project (205 units vs 197 units)”.

The reduced level of project completions has contributed to a very tight condominium rental market, as Urbanation’s UrbanRental report indicates a record-high lease-to-listings ratio in Q3-2012, an indication that demand is much higher than supply for investor held rental units.

The resale condominium market conditions also softened in Q3-2012, as transactions fell 32% quarterly in the Toronto CMA from 5,050 in Q2-2012 to 3,413. Pricing on a per-square-foot basis remained flat in comparison to the second quarter at $407 psf, as both the average unit size traded and the average end-selling price decreased (910 sf to 891 sf / $370,000 to $362,000).

“The change in the mortgage insurance rules may have forced many buyers to settle for smaller units then they had previously desired” says Myers. “The number of resale transactions for units priced over $400,000 fell 40% compared to last quarter, while there was a 38% quarterly drop in units traded over 1,000 sf.”

Just 10 projects, or 2,035 condominium units registered in Q3-2012, and the dearth of new supply resulted in a decline in resale listings quarterly from 10,163 in Q2-2012 to 9,032 in Q3-2012. Urbanation expects a much higher level of resale listings in 2013, as more than half of the 56,336 condominium units under construction are expected to complete construction next year.

The 28,000-plus completions next year could add as many as 14,000 new condominium rental units to the Toronto CMA via private landlords, which would represent a whopping 25% increase in condominium rentals in the Metropolitan Area.

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Urbanation is Canada’s leading condominium market research company. Since 1981, Urbanation has analyzed the Toronto condominium market, publishing the “industry bible” – Urbanation’s Condominium Market Survey. This quarterly report tracks new, resale and future condominium projects. The newest report from Urbanation is UrbanRental, which tracks activity in the condominium rental market. Urbanation also provides the development community with essential consulting services, which include site and topic specific market studies and surveys.

Media Contact:          Pauline Lierman
Pauline at
416 922 2200 

Wednesday, September 12, 2012

We Need Developer Assistance - RE: Toronto's Assignment Activity

This week Urbanation has started collecting data for our last survey on assignment activity in the Toronto CMA new condominium market.

We wanted to make it publicly known that we are not getting paid for the collection of this data, and we are not selling the results of this survey - our goal is to simply provide the industry with hard data on the 'speculative' market that may or may not exist in Toronto.

Recently, Toronto's most recognizable developer, Brad Lamb, discussed his feelings on assignments in this Home Publishing article. Mr. Lamb does not feel that the market for assignments is out of control, yet several media articles have warned of excessive speculation in the Toronto condominium market and its dire consequences. Unfortunately, decision makers at major banks that lend to the high-rise construction industry are reading these articles and being influenced by these articles. There is no doubt that part of the recent decision to alter the mortgage insurance rules was in part due to apprehension regarding 'flippers' or short-terms investors in Toronto's markets.

As a note, the individual project data on assignments WILL NOT be published, just the aggregate data on a submarket, municipality and CMA basis, yet we have already had developers respond saying that they will not provide us data for this survey. What are you trying to hide? If activity was limited, why not get that word out?

We would really like those developers to understand how important the results of this survey, our quarterly Condominium Market Survey and UrbanRental reports are to industry. Lenders, brokers, appraisers, municipalities, suppliers, insurers, mutual fund managers, hedge funds, private equity firms are looking for data to make better informed decisions, and without that data, they may and likely will make detrimental decisions in relation to these developer's projects.

The Toronto condominium market has been hot for 10 years, but the recent data suggests it is slowing and anecdotally, investors are now looking elsewhere to park their money, as they don't anticipate the same level of price appreciate going forward. Hopefully, developers will realize that construction lending dollars, mortgage dollars, and equity dollars will flow more easily when those firms have all the data available to them when they are making the decision to lend or not.

Please take the time to respond to our request as a service to the industry. Thank you.

Ben Myers

Thursday, August 23, 2012

Research Assistant Wanted

Urbanation Inc, a real estate market research firm, is seeking a research assistant for their midtown Toronto office. Responsibilities include data collection and data entry in Microsoft Excel and Access formats, maintaining Urbanation’s internal contacts database and project mapping software, and visiting condominium sales offices and industry networking events. Additional duties include managing internal paperwork, invoicing, filing and shipping duties.

The successful candidate will assist in the writing and editing of Urbanation’s quarterly reports and custom consulting assignments. A valid driver’s license and access to a vehicle on a regular basis is required. A degree in Economics, Urban Planning, or Statistics is preferred, with additional experience in real estate (appraisals, new home sales, or market research) a plus.  Applicants should possess excellent writing skills, a proficiency working with spreadsheets, and be comfortable making telephone enquiries.

Salary will be commensurate with experience

Please submit a cover letter (with salary expectation), resume and writing sample to Ben at Urbanation .ca – no phone calls please.  Only those chosen to interview will be contacted.

Thursday, August 2, 2012


Reversal of strong markets from Q1-2012, when new was hot and resale not.

TORONTO – August 2, 2012:  Urbanation Inc., the leading source of information and analysis on the Toronto condominium market since 1981, today released its Q2-2012 market overview.

In the Toronto Census Metropolitan Area (CMA) there were 5,050 condominium apartment resale transactions in Q2-2012, an increase of 30% over the first quarter, and 9% over Q2-2011. The average unit sold for $407 psf, an increase of 4% annually from $391 psf from the second quarter of last year.

“Following three quarters of flat pricing and declining sales-to-listings ratios, we expected that the additional supply registering had finally depressed the market,” says Ben Myers, Urbanation Executive Vice President and Editor. “We were very surprised by the resale results in the second quarter. A healthy appetite for condominiums from end-users still exists”.

The average resale unit traded in Q2-2012 in the Toronto CMA was 910 sf for $370,000, while the former City of Toronto averaged 832 sf for $448,000.

By comparison, the average unit in the Toronto CMA new condominium market was 751 sf in Q2-2012, at an average price of $395,000. The spread between the average new and resale condominium in the second quarter was 159 sf; by comparison, the gap was less than 70 sf four years ago.

“Developers have been shrinking unit sizes in recent years to keep end-selling prices affordable for end-users and produce easily rentable suites for investors,” adds Myers, “however, there finally appears to be some resistance to these smaller suites, which is being reflected in softening new sale activity and a lower sales price (as a percent of list) in the resale market for smaller product”.

The 4,769 new condominium sales in Q2-2012 were down 21% from the first quarter record high of 6,070 in Q1-2012. However, the 10,839 sales in the first six months of 2012 were the second highest year on total for the CMA.

CMA sold index pricing is up 7.2% year-over-year to $525 psf in Q2-2012, the lowest annual growth rate since Q1-2010. A further sign that price inflation is finally cooling, is that the average unsold unit was being offered at $566 psf at the end of the second quarter, unchanged from Q1-2012. Unsold pricing actually decreased quarterly in the former City of Toronto to $656 psf, but increased slightly in the Downtown Core to $758 psf.

The Toronto CMA condominium market continues to set records with 343 active projects, and 87,386 units, of which a market-high 52,695 units are under construction (196 projects). “Despite talk of tightening credit to condominium developers, 7,343 units started construction in Q2-2012, the highest level in over a year” Myers notes.

Although 88% of the units under construction are sold and 79% of the active market overall, unsold supply set a new market high at 18,123 in the second quarter. “We expect fewer launches in the second half of 2012 than the latter half of last year,” adds Myers, “as developers would like to see some of the unsold supply absorbed before bringing their projects to market”.

New projects will also face competition from newly completed projects, as 13,000 condominium units are scheduled to complete in the second half of 2012, and up to 28,000 units in 2013.

Despite the shifting market results, Urbanation has not adjusted their forecast of 20,000 new condominium sales and 17,500 resales for year-end 2012.

-  -


Urbanation is Canada’s leading condominium market research company. Since 1981, Urbanation has analyzed the Toronto condominium market, publishing the “industry bible” – Urbanation’s Condominium Market Survey. This quarterly report tracks new, resale and future condominium projects. The newest report from Urbanation is UrbanRental, which tracks activity in the condominium rental market. Urbanation also provides the development community with essential consulting services, which include site and topic specific market studies and surveys.

Tuesday, May 22, 2012

NIMBYs and the OMB, who's right?

NIMBYs (or Not In My Backyard) and the Ontario Municipal Board (OMB) are often topics of media attention and we are witness to the fights that take place in each of the communities in Toronto.

"Just build to the current zoning" says an angry resident. Or if the zoning is the opposite of the result you seek "1960s planning is bad planning". We are often amused by the banter on either side.

The recent firestorm created by an application for a 6-storey condominium apartment in "The Beach" recently got us thinking once again!

Contentious issues with the application were that it stepped back at the 4th storey instead of the 3rd, that it was 6-storeys (bringing shadows down on neighbouring properties), that the modern architecture was out of place in the 'village' context of The Beach, that traffic would be congested, that the area is a family neighbourhood and the introduction of young singles would interrupt that, among several other complaints.

Now some of these complaints were valid and some were not. Our thoughts: there are already 6-storey buildings in The Beach. In terms of shadows - is the expectation when you buy a home that the neighbourhood will never change? In addition, only 25 resident parking spaces will be added, and according to my discussions with the developer, the majority of purchasers were move-down empty-nesters from the area, many retired - doesn't sound like a lot of extra traffic in the morning or rowdy 20-somethings partying it up at night.

However, regardless of the arguments on either side, Urbanation would like to pose a question: in the planning process (including the work by the councillor and the OMB), should the goal be to minimize negative externalities to current residents, to maximize positive externalities to current and future residents, or a some combination of both?

By example, a couple residents will be hurt by new shadows on their property, noise from the construction site, and others will mourn the loss of the 'village' feel of their community and be forced to look at architecture that they perceive as "too modern", 25 more cars will be added to the area - these are a few of the negative externalities.

Positive externalities include - the owner of the property cashes in on the land sale, the developers make money (in theory!), the community adds a modern tower with more customizable retail space, a more green / energy efficient building is added to the area, local empty-nesters can "age in place" and move to a maintenance free condominium near their old home, a family looking for extra space can now buy their old home, and the additional folks in the neighbourhood can support some of the lagging existing retail space. Of course there are several more, including the jobs created by the construction of the building.

In the end, how does one balance these competing interests? Often times they cannot, and the case is brought before the OMB for a resolution. This quick resolution is what brought several Vancouver-based developers to Toronto instead of having a site tied up for years working on a compromise (an example of a negative externality is the public and private time and money spent on these compromises).

Just recently several councillors proposed having Toronto exempted from the jurisdiction of the OMB. These councillors are reacting to pressure from their constituents that are not happy with recent OMB results. At Urbanation, we tend to agree with comments made by American scholar Cass Sunstein in his assesment of similiar situations south of the border, that this is a poor set of priorities, that reflect a reaction to public pressures more than careful objective analysis.

He goes on to say that lawmakers and regulators may be overly responsive to the irrational concerns of citizens, both because of political sensitivity and because they are prone to the same cognitive biases as other citizens.

NIMBYs look to drum up attention (particularly fear) in local residents about "ghost cities", poor vertical communities like St. James town, out of place towers that threaten the lifeblood of the community - the more emotionally charged the message, the better [keeping in mind that the valid objections can often be overshadowed by the non-valid objections or the method of delivery].

Once a few people are "outraged", the emotional reaction becomes a media story, which grabs more attention and creates more worry and public arousal.

Mr Sunstein suggests that the United States should seek mechanisms that insulate decision makers from public pressures, letting the allocation of resources (negative externalities vs positive externalities) be determined by impartial experts who have a broad view of all risks, and of the knowhow available to reduce those risks.

Is that not exactly what we have in the OMB? Might be a good idea to keep it.

Monday, May 14, 2012

Is the Sky Falling? Real Estate / Bubbles

We put out our Q1-2012 press release last week at about the same time that CMHC released their housing starts data, both generated a plethora of news stories on Toronto real estate, especially the 'overheated' condo market (overheated being the media word, not Urbanation's).

We were truly shocked at how many different newspapers, magazines, and other online sources picked up the story or enquired about the data. Nearly all of these articles included the word "bubble" in their pieces, many with dire warnings of oversupply of units and unsustainable prices. Now Urbanation has commented several times that we do not think the market is experiencing bubble conditions based on the definition of the word, but we have issued our own warnings about the increasing level of unsold supply in the new condominium market and the potential for as many as 25,000 to 29,000 condominium apartment completions in 2013. Our question regards the media's treatment and/or coverage of the info. Is their inclusion of the word bubble in every article just good reporting, a review of a topic that is on everyone's mind, or is it typical media sensationalism?

If you read the comments posted under these articles, you will see that most of the people that comment believe the market crash is imminent. The worst thing is, there appears to be a lot of people that are actively rooting for it! Perhaps we are reading too much into it, but there appears to be a hatred for condominium investors, with commenters hoping for these people to "crash and burn". If you take extreme pleasure in the financial failure of others and actively root for the explosion of your own housing market (so you can afford a unit), then we think there is seriously something wrong with you! If the housing market crashes, there will be a lot of misery, a lot of lost jobs and a lot of losses in the financial markets that would likely hurt these people as well. Be careful what you wish far, not all people that are successful had it handed to them, some worked very hard to get there.

There are no shortage of these folks on the internet, and a great place to find them in on the websites of the notorious market bears. Urbanation has been accused of being biased positive towards the market, that we are a market bull (a mouthpiece for the industry, one person wrote online), despite the fact that we put plenty of 'negative' points in our press releases, and issue our own warnings about the condominium market in the Toronto CMA. Media feeds people's fears and we would be lying if we said we try to put a little fear in the minds of our clients so they feel the need to keep reading our reports (sorry folks)!

In addition, if these market bears were so unbiased, would they be trying to sell you their book, would they be selling advertising on their websites? Sensationalism leads to website clicks and book sales, they can't deny that. This is a debate for another day, but the point is that it is very difficult to be 100% unbiased, especially when there is a financial incentive to take a specific angle.

As long a prices continue to go up in the new condominium market and buildings continue to break ground we will continue to see these articles in the news, however slanted they may be. The problem is that without sufficient data or limited data it is easy to make up a believable story about what is happening out there.

A great example is a story that an bank economist has been telling lately that the rising prices in the new condo market has made almost all investor held units cash-flow negative and they will flood the resale market with units and depress pricing for everyone. Sounds plausible right? The first part is actually based on truth, but the conclusion is based on no factual evidence. If an condominium investor is putting a minimum 15% to 20% down, then yes, they are likely to be in a monthly negative cash flow situation based on their carrying costs (we'll skip all the details). However, based on many of my discussions with agents, brokers, developers and mortgage insurers, many investors are putting much more down when arranging their mortgage, or others are 'adjusting their financing' to put themselves in a positive cash flow situation. In reality, when we ran the numbers on recently registered buildings (past 6 months), only 10% of the inventory in those projects were listed for sale on MLS in Q1-2012, compared to 12% in Q1-2011 and 13% in Q1-2010 and Q1-2009 based on the same metrics. Contrary to what most people would think, the increased level of investor activity in the market has resulted in LESS units listed for resale upon building registration! The minimum down payment investor must have disappeared because the condominium rental market is as hot as ever and there is no rush to sell these units by investors.

A second article warned of foreign buyers snapping up the new condominium units and causing prices to be elevated for everyone! Ban foreign buyers was the conclusion, keep prices affordable for Canadians (it wasn't Don Cherry that wrote it by the way). We have estimated that approximately 10% to 15% of new condominiums are being purchased by foreign buyers, but in a recent television interview, 70% foreign buyers was thrown out by the reporter! This is beyond false and irresponsible journalism. In reality, these foreign buyers are creating more supply in the market and keeping prices down! Foreign investors buy in a condominium projects during the pre-construction phase and help developers reach the 65% to 80% pre-sales required to secure construction financing; they also create a sense of urgency to purchase in these developments when people see how fast the units are moving. Without these foreign investor buyers, many of these projects would not have gone ahead, as many end-users are sceptical about investing in pre-construction and don't have the 15% to 20% to put down. These foreign buyers help these projects get sold in a financially viable time period and hold the units for end-users until registration (or 3 to 5 years after registration), so these end-users can purchase them with 5% down in the resale market.

For an aside to the point made above, the majority of the foreign investors plan to hold and rent their units. So let's do the math. About 20,000 new condominium sales in the CMA, so 3,000 are purchased by foreign investors. So if they sell all 3,000 at registration, then that wouldn't lead to an increase in prices, the extra supply would lead to a decrease in prices! Now if they hold and rent all 3,000 units, would that lead to an increase in Toronto prices? - that really depends on where they set their rents and how they compete with other investor units, but in reality the additional supply of suites would likely depress prices, not increase them. If we had a foreign company come in and build three 500 unit rental buildings in Toronto, one in North York, one in Mississauga and one in Markham, would anyone really care? - the response would likely be very positive!

In closing, be wary of who you trust when reading these articles, there is always another explanation, or another angle to be explored with every story (but look for statistical back-up to their claims). We will try to bring you some of these alternative angles on this blog and in our articles in the New Condo Guide.

Monday, May 7, 2012

Record Quarter For Toronto Condo Sales

Despite brisk activity, anxiety surrounding market remains

TORONTO – May 07, 2012:  Urbanation Inc., the leading source of information and analysis on the Toronto condominium market since 1981, today released its Q1-2012 market overview.

The new condominium apartment market in the Toronto CMA saw 6,070 sales in Q1-2012, the highest of any first quarter on record. The 338 active projects and 84,698 active units were also record highs.  The average of 18.0 sales per project, however, was lower than in Q1-2011 (18.3) and Q1-2010 (20.4)

“Despite the record sales in Q1-2012, Toronto CMA brokers and developers still report anxiety about the future health of the condo market,” says Ben Myers, Urbanation Executive Vice President and Editor. “The probability of a market crash or major price correction is very small, but the prevalence of media coverage for this outcome remains high.”

Despite this, investors and end-users continue to buy. The average sold price index increased to $519 psf in the Toronto CMA, an increase of 2.0 per cent quarterly and 8.1 per cent annually. The average unsold unit is being offered at $566 psf in the CMA. Urbanation estimates that the average price in the new market is $393,000 with an average size of 757 sf.

The resale market was weaker, with resale index pricing decreasing quarterly for the first time since the recession-impacted Q1-2009, falling from $400 psf in Q4-2011, to $396 psf in Q1-2012. That drop represents a 1.0 per cent quarterly decline, although annual growth remained positive at 3.7 per cent. The average resale price also dropped 1.0 per cent quarterly, from $361,000 to $358,000, although it rose 3.8 per cent year over year.

While resale pricing data seems to indicate the market is slowing, there were, in fact, just 64 fewer re-sales in the first quarter, compared to a year earlier (3,888 vs. 3,952), while the average days on the market remained unchanged at 30. In addition, fewer units have sold in newly registered buildings; these new units typically pull the resale average up. Less resale listings in newly registered buildings suggests a larger share of long-term investors, as opposed to speculative ‘flippers’.

In its Q4-2011 release, Urbanation identified unsold supply as one of several potential factors that could potentially derail the Toronto condominium market. There were 15,554 unsold units at the end of Q1-2012, an increase of 4 per cent quarterly and 27 per cent annually.

But as financial institutions, especially those that are Canadian based, move to tighten lending, resulting project cancellations may mitigate the level of unsold inventory.

The market will be further tested in Q2-2012, however, with the potential for as many as 40 new project launches with more than 11,000 new units that could come to market. If the absorption rates for new and existing projects remain constant at 55 per cent and 20 per cent in the second quarter, unsold inventory in the market will still rise to over 17,000 units, nearing the market high of 17,600 from Q4-2008.

“With the market being much larger now, the question is: Is this higher level of unsold inventory the new reality?” asks Myers. “Or is it a sign that the market has reached its peak? We’ll have to see.”


Urbanation is Canada’s leading condominium market research company. Since 1981, Urbanation has analyzed the Toronto condominium market, publishing the “industry bible” – Urbanation’s Condominium Market Survey. This quarterly report tracks new, resale and future condominium projects. The newest report from Urbanation is UrbanRental, which tracks activity in the condominium rental market. Urbanation also provides the development community with essential consulting services, which include site and topic specific market studies and surveys.

MEDIA CONTACT: Vicki Griffiths
                                    Vicbar Marketing Limited

Friday, March 9, 2012

Why Rent-to-Resale Calculations are Bunk

We read a great blog post recently by John Pasalis of Realosophy: click here
John touched on 'rent multiples' and that several reports on the Canadian housing market have used this measure to determine that Canada and several areas within it are "overvalued". The hypothesis is that the gap between the average rent and the average resale price has been expanding and that the average rent is a baseline for affordability, and that an area is valued ‘correctly’ or the area is balanced if the average rent and average price move in parallel. John puts it in slightly different terms:

The theory is that house prices should be appreciating at a similar rate to rents.  If house prices start to appreciate at a much faster rate than rents it suggests that house prices are overvalued... ...Eventually, more people start renting until rents rise and/or house prices fall to a level where there is no material financial benefit to renting over buying.

Many of the charts for major Canadian centres shows that the gap between the average resale price and average rent has widened and the conclusion naturally is that housing in overvalued. Not sure why this doesn't suggest that rents are undervalued, and a major upward correction in rents is imminent?

Regardless, this methodology is fatally flawed for several reasons: it does not factor in the age, size and exact location of the units in question. Secondly, the source of the rental information has been called into question, especially with the major expansion of the private rental market, the inclusion/exclusion of heat, hydro, water, cable etc. A third major factor is the existence of rent controls in certain areas. A fourth factor is the existence of a low interest rate environment that allows the average home owner to purchase a larger, more expensive home (or simply get in the market) with a lower monthly payment.

The key point to take out of the above is the first one. We are a firm that looks at averages frequently, but they can often mask or misrepresent data due to outliers and other factors. And consequentially, WHEN DRAWING CONCLUSIONS BASED ON THE RELATIONSHIP BETWEEN TWO VARIABLES, ONE MUST CONSIDER A THIRD (or fourth, fifth, sixth, etc) VARIABLE THAT COULD BE INFLUENCING THE RELATIONSHIP.

We'll provide a simple example using sports. Let's say I took three NBA teams (Spurs, Lakers, Magic) and looked at their average rebounds per game in a year and their winning percentage in those years. Wow, the relationship shows that a major improvement in rebounds per game in 97-98 led to much higher wins for the Spurs that year. We also saw rebounds and wins jump for the Lakers and 96-97, but both dropped in 04-05. There was a major improvement in 04-05 in rebounds and wins for the Magic.

Therefore we draw the conclusion that the more rebounds you get, the more wins your team will get. The Raptors see this data and go out and sign 5 guys that are 7'3" tall. The next year the Raps dominate the league in rebounding but win only 5 games, what! They should have seen an increase in wins right? Wrong, the five players can't cover anyone on the outside, can't play defence, but because they are tall they get lots of rebounds. They can't shoot, so they keep grabbing their own offensive rebounds and missing again!
So what went wrong in our analysis above? There was a third factor that contributed both to the increase and decrease in rebounds and wins in the above example, the Spurs added Tim Duncan in 04-05, Shaq came to the Lakers from 1996 to 2004 and the Orlando Magic added Dwight Howard in 2004 and all added new dynamics to their teams including shot blocking, scoring, passing, and confidence, in addition to their rebounding skills.

This is a typical example given in any economist's first year Econometrics class. The economists making these 'overvalued' statements should pull that textbook back off the shelf and take a look at it again. In economics you must 'control' outside variables, keep them as constant as possible so you can really determine the relationship between the two variables you are looking at.

In terms of rent multiples, you could potentially have a beach city building tons of 2,000 sf rentals overlooking the ocean and small 1,000 sf bungalows on outskirts of town and you compare that to a town building a bunch of 3,000 sf McMansions on estate lots and then small rentals on the outskirts near an industrial park, the rental multiples will be very different for those to areas, which one is really overvalued?

Although our data (from our UrbanRental report) is limited, having only begun collecting data for our reports over the past two years, we looked at the relationship between index rents and index prices in the Toronto CMA condominium apartment market. To avoid having the data skewed by location or age of product, we looked at ‘matching pairs’ of data only, dividing the average price psf by the average rent psf at a specific building. We looked at the weighted average (by total resale and rental transactions) of our rental multiple for some of the top municipalities and the Toronto CMA overall by looking at data points for the same buildings in Q4-2010 and Q4-2011. Using the index price and index rent, further controls for the size of the suites. In this example we were able to control for the location, age and size of the units. However, there are a few measures we couldn't control for: the floor that the unit is on (condo rentals tend to be on lower floors), parking (more units are rented without parking than resale units), renovations (resale units tend to be renovated more often than rental suites), terraces (units with large terraces or balconies tend to be owner occupied), etc, etc. See the table below.

If the hypothesis of a ‘balanced’ market held true, the rent multiples would remain the same year-over-year, however all the major municipalities increased with the exception of Richmond Hill. Therefore all markets are, in effect, less affordable than last year if one believes that rental rates are the baseline for affordability. The Toronto CMA is 3.1% less affordable (or overvalued) in comparison to last year.

Scarborough’s rent multiple increased by 10% in Q4-2011 over Q4-2010, the largest increase among the municipalities above, followed by Vaughan at 7.4% and Mississauga at 6.6%. The former City of Toronto increased by just 1.4%.

Urbanation would find it hard to believe that Scarborough condominium apartment units became much more overvalued than the former City of Toronto in 2011 and that Richmond Hill units became more affordable. According to John Pasalis, even Windsor is currently overvalued based on the metrics discussed earlier.

At Urbanation we do not believe that pricing will go up forever, or that Toronto's condominium market is not showing potential signs of future weakness, however is not because of an "out of whack" rent multiple. Look to Urbanation for reasoned, unbiased data on Toronto's condominium market from the firm that has tracked it longer than any other firm.

Thursday, February 23, 2012

Harvey Kaufman

We were very saddened to hear of the passing of Harvey Kaufman of Norman Hill Realty a couple weeks back, he was a big favourite in the Urbanation office. Harvey handled the sales of a number of high profile developers including The Pemberton Group, Menkes Developments, and The Conservatory Group to name a few.

After many years of trying to get Harvey to sign up for our report we just gave up, but were happy to exchange info with him whenever we could and express our opinions on this site or that. The most admirable trait possed by Harvey had was his ability to stick up for himself and what he beleived in. There were many a times that a developer told him not to give data to us and he told them it was the right thing to do, that Urbanation provides a valuable service to the industry and assists many of the lenders, suppliers, appraisers that work on their projects make more informed decisions. That takes a lot of stones when dealing with some of the clients he did and we thank him one last time for it.

Many of the jokes and insults that Harvey told us we won't be sharing on this blog, but trust us, they were priceless. We wanted to make sure we acknowledged how much me thought of him and hope his family is doing well. Our condolences.

Monday, February 6, 2012

Urbanation Press Release: Q4-2011 Condominium Market - Toronto CMA

MEDIA CONTACT: Vicki Griffiths
Vicbar Marketing Limited
Urbanation Reports 2011 SALES SHATTER PREVIOUS Record high
What does 2012 hold for Toronto’s condominium market?

TORONTO – February 6, 2012:  Urbanation Inc., the leading source of information and analysis on the Toronto condominium market since 1981, today released its Q4-2011 market overview.

The 7,226 new sales in Q4-2011 were not only the highest of any fourth quarter on record, they helped the Toronto CMA reach a record high of 28,190 new condominium apartment sales in 2011. This caps a truly unprecedented year – one that smashes the previous record of 22,654 sales set in 2007 by an astounding 24 per cent.

Urbanation tracked a total of 357 condo project in Q4-2011, 330 active projects containing 81,274 units, with 5,464 units in the 27 sold out (and not registered) projects.

But with the record year 2011 behind us, industry participants and purchasers are asking: What comes next? Are the numbers a cause for celebration or for concern?

“The more successful the condominium market is in Toronto, the more reports surface warning of oversupply or a correction in prices,” says Ben Myers, Urbanation Executive Vice President and Editor. “Because the underlying realities of the market are constantly changing, we wanted to take off our ‘rose coloured glasses’ and review potential factors, both economic and psychological, that could derail the high-rise market in Toronto in our latest report.”

Urbanation identifies speculative purchasing, over-leveraging and herd behavior as risk factors for a market correction. Regarding speculation, the Toronto CMA has seen very few resale projects experience a ‘dump’ of units at registration; meaning purchasers are likely long term, hold-and-rent investors. A 2011 survey of Urbanation industry participants revealed that only 57 per cent thought that more than 10 per cent of condo suites were being assigned pre-registration. That’s a drop from the 70 per cent of respondents who felt that way in 2010.

The 2011 survey also showed that there was little concern with the level of international activity in the market. Leverage was also not identified as a major concern, leading Urbanation to believe that condominium investors are well capitalized.

Based on the responses to Urbanation’s latest survey, the biggest concern going into 2012 is that unit prices are rising too quickly (according to 53 per cent of respondents, up from 34 per cent who expressed the concern about pricing in 2010.)

Despite the concern, the unsold index price inflation was moderate in the new condominium market at 5.1 per cent annually to $557 psf, while the former City of Toronto saw prices rise just 2.5 per cent from $646 psf to $662 psf. Unsold units were offered at $835 psf in the Downtown Core at the end of the fourth quarter, an increase of 15.5 per cent over Q4-2010 ($723 psf), a significant jump.

While Urbanation’s 2011 survey showed respondents had less trepidation in 2011 regarding a potential oversupply than there was in 2010 (21 per cent versus 6 per cent), unsold supply increased 13 per cent in Q4-2011, the largest quarter-over-quarter jump for the Toronto CMA since Q2-2008. The 14,969 unsold units at the end of Q4 represent the highest level recorded since the mini-recession in Q1-2009 and an 8 per cent increase over Q4-2010.

Myers added “the key statistical indicators that Urbanation reviews quarterly in our publication are still positive, seller’s market conditions in the resale market and strong demand for condominiums in areas that have not previously supported high-rise densities. We anticipate that the market will remain strong in 2012, with over 20,000 new condominium sales” Urbanation’s  survey respondents believe the results will be slightly lower, with 41 per cent predicting sales between 17,500 and 20,000. It is worth noting that, in Urbanation’s 2010 survey, 39 per cent of respondents forecasted 13,000 to 15,000 new sales for the Toronto condominium market for 2011 – half of the final record breaking result.


Urbanation is Canada’s leading condominium market research company. Since 1981, Urbanation has analyzed the Toronto condominium market, publishing the “industry bible” – Urbanation’s Condominium Market Survey. This quarterly report tracks new, resale and future condominium projects. The newest report from Urbanation is UrbanRental, which tracks activity in the condominium rental market. Urbanation also provides the development community with essential consulting services, which include site and topic specific market studies and surveys.