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!

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

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.

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

FOR IMMEDIATE RELEASE

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 8^th 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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ABOUT URBANATION

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.

www.urbanation.ca

www.twitter.com/urbanation

www.urbanation.ca/UrbanRental

Media Contact:          Pauline Lierman

Pauline at Urbanation.ca

416 922 2200 

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

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.

www.urbanation.ca

www.twitter.com/urbanation

www.urbanation.ca/urbanrental

TORONTO CONDO RESALE MARKET HOT AS NEW MARKET COOLS

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.

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ABOUT URBANATION

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.

www.urbanation.ca

www.twitter.com/urbanation

www.urbanation.ca/UrbanRental