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.

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.

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.

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