Isn’t it July?
Doesn’t the market typically slow down in the summer?
At the risk of sounding like a broken record – always using “I’ve never seen…” or “This is the busiest market since…,” I have to say that as far as summer condo markets go, this one is the wackiest I’ve ever seen.
It’s fast, it’s busy, it’s efficient, and as a result, we’re seeing some downright wacky situations.
Let me detail one for you that I had this week…
Have you guys all watched my web series?
The one with the stupidly-long name that I almost regret – “What if the whole world worked the same way as the Toronto real estate industry?”
Well part of the reason I decided to start the series, along with the fact that it’s fun, and I’m a cynical bastard, is because I wanted to bring some levity to a part of our lives which used to be fun, but no longer is.
Buying a house or condo should be an exciting time! It should be a fantastic experience! But the way the Toronto market is, and has been for many years, has rendered the process beyond frustrating, and borderline unenjoyable for many.
I’ve been working with a young woman for the last five or six weeks who has a very simple goal in mind: to buy a condo. Easy enough, right?
She’s not just looking for any condo, however, but her needs aren’t over the top. It’s nothing to do with price, but rather finding the right unit, in a newer building, with reasonable carrying costs when you factor in the price per square foot (ie. getting value whether it’s a 530 sqft 1-bed, or a 700 sqft 1-plus-den), the maintenance fees, and the utilities.
The first offer we made, er, tried to make, was for a unit in my old building at 230 King Street. A listing had been on the market there for 28 days, and in my mind, that’s the timeframe that screams “price reduction.”
The unit was listed at $318,000, and I felt it was worth closer to $300K. The comparables said so, and plus, I’ve sold more units in that building than just about any agent, so to be honest, I think I had a pretty good handle on value.
We drafted an offer for $300,000, which was quite reasonable. After 28 days on the market, the seller and the agent had to be eyeing a price reduction. Nothing in the downtown core, in a building like that, sits on the market for 28 days if it’s well-priced.
But as I alluded to above, we tried to make the offer, but before I could email it over, the listing agent told me that the unit had sold the night before. The worst part? $2,000 under asking.
Like I said in Wednesday’s blog post, a property is theoretically worth what somebody is willing to pay for it, but how do you pay $316,000 for a unit listed at $318,000, that’s been on the market for 28 days, when the last sale was for $305,000 two months ago?
The next offer we made was on a unit in my building. The unit had been on the market for eight days, and listed at $394,900, I figured we had “nothing to lose,” and so we drafted an offer for $385,000. I mean, what’s wrong with an offer $10K under asking – for something on the market for eight days? The identical model sold five weeks earlier for $385,000, so we were right on point.
Before we could submit the offer, however, the listing agent called to tell me there was another offer registered.
I had a long conference call with my clients, and they said that even though this unit was monumentally more expensive than the previous unit we had bid on, they felt it was something the young lady could grow into, and the low maintenance fees, and A+ location were worth it.
So we upped our offer to $396,000; ever-so-slightly over asking. Sure, the previous model had just sold for $385,000, but it’s only one sale, right?
The condo market isn’t like the housing market, where “multiple offers” always means “over asking.” We were taking a chance that the other offer was somebody less aggressive – maybe at $385K, $390K.
Alas, it was not to be. The other offer whooped us – $405,000.
It’s a bit nuts – $20,000 over the previous sale, only weeks earlier, but that’s how the market goes.
I had no regrets about either unit on which our offers were trumped.
I don’t sell anything to my clients at any cost. It’s my job to tell them when to step aside, and while I do believe there’s nothing wrong with paying a premium if you absolutely love something, neither of these units was “magic.”
Our third foray into the market was one I described on Wednesday – we bid $345,000 on a unit where some whack-job paid $376,000 for it. That one was just insane. I simply cannot find the words to describe it.
But it was the most recent experience that was the wackiest of all.
We booked a showing for a unit that had just come onto the market that day, and we arrived to find another agent in the unit doing a showing.
While waiting outside for them to finish, I told my young client, “You know, it doesn’t always work like this. We’ve had a really bad run of luck. To find ourselves losing out once – that’s very common. But three losses, and all of them to buyers willing to pay more than anything that’s reasonable, well, that’s tough.”
She shook it off, and said she wasn’t in any hurry to find a place, and that she was gaining valuable experience as our search moved along. She said many of her friends were still sleeping on other friends’ couches, and living four people to a 2-bedroom condo, so she felt she was fortunate to even be looking at properties like this.
We stepped inside the unit, and it wasn’t more than five minutes before she said, “Yes, let’s do it.”
I think we had a feeling going in that this could be a unit we’d bid on. But once inside, we could only find one drawback: no view. Other than that, the unit ticked all the boxes, and we decided to draft an offer after only about 4-5 hours on the market.
Here’s where things get really wacky, however.
Sometimes an experienced agent just gets a “feeling” about the way things are going to go.
I can’t really describe it. Maybe it’s a sixth sense.
But knowing I was about to submit a full-price offer on this condo, on the first day of the listing, and email it to the listing agent with an irrevocable of only about four hours, I didn’t feel in any way confident.
In fact, I felt pessimistic.
What does it say about our market that when you submit an offer of FULL PRICE, you’re not feeling confident?
And keep in mind, these are condos, not houses. These are not properties that come onto the market under-priced, with set “offer dates,” whereby you expect them to sell for 120% of asking.
Full-price?
In the condo market?
It should be a slam dunk.
I submitted my offer around 7pm, and around 10pm, the listing agent called me.
“David,” he said, with pause in his voice, “The seller has decided not to sign-back the offer.”
Sign-back?
Why would he sign-back?
It’s a FULL PRICE offer.
“You mean, he’s decided not to accept the offer?” I asked.
“Correct,” the agent said, very succinctly. “But he’s also not signing it back.”
I played coy; almost dumb, just waiting to see what would come next.
“I…….I don’t understand,” I told him. “I just want to make sure I have this right. So I submitted a full-price offer, after a few hours on the market, with a healthy deposit, and no condition other than a review of the Status Certificate, which is a rubber-stamp given I’ve sold six units in this building in the past year………and you’re not going to accept the offer?”
“Correct,” he said.
“I’ll bite,” I told him. “What am I missing here?”
“Well we have had a ton of interest in the unit,” he began to tell me. “And the seller has decided to re-examine his position and open some discussions and dialogues as to how to proceed moving forward.”
Jesus. He talked like a lawyer. Or the Commissioner of a professional sport, skirting around a tough question:
“So, Commissioner Bettman, do you think an NHL hockey team could come to Quebec?”
“Well, that’s certainly a topic of discussion that could garner significant dialogue and discussion among pertinent parties at appropriate and particular junctures in given time frames….”
The agent went on to explain that because there had been “significant interest,” his client felt that he wanted to re-consider his position.
I was tired of talking in euphemisms and code, so I asked, “He wants more money?”
The agent wouldn’t really answer. He just said, “The seller is going to re-examine his position.”
“So what does he want for the unit? What does he think he can get? Another $5K? $10K?”
The agent simply said, “We’re going to have that discussion…”
It was completely nuts.
I feel as though the agent and the seller were so caught off guard by a full-price offer, that they panicked, and said, “What’s wrong here?”
Maybe they didn’t know how busy the market truly was.
Maybe they were kicking a gift-horse in the mouth.
Or perhaps, had they received an offer of $390,000, they would have responded better.
Isn’t that wacky?
I can’t figure out if it’s greed, fear, stupidity, or all of the above.
But imagine the seller who receives a full-price offer on their condo, and then immediately turns around and takes the property off the market?
That’s fear, in my mind.
Fear of selling for less than you might get, which in turn, is greed.
It’ll be interesting to see how that situation plays out.
But it shows you that there’s no certainty in this market, and it’s completely unpredictable.
One minute you’re bidding on a unit that’s been rotting on the market for 28 days, only to see it sell for almost full-asking, and the next minute you’re offering the full asking price on a unit, only to see the seller take it off the market.
This isn’t every condo, mind you. I have two listings that have been on the market for approaching two months, but there are certain pockets of the market – whether it’s price, location, or style, that are selling like hot-cakes. And just as I have no idea what an actual “hot cake” is, where they’re sold, or why they (apparently) sell so well, I also have no idea where this condo market is headed.
Rumours of interest rate cuts are starting to spread. The Globe & Mail ran an article two days ago about Canada’s near-record trade deficit, and how that might spark the Bank of Canada to cut rates, yet again.
Is it possible that this condo market will not only see continued returns, but returns at an increasing rate?
Appraiser
at 1:32 pm
David. It seems your real-world experiences as well as the latest sale stats, certainly run counter to the bear narrative that there has been overbuilding in the condo sector in Toronto, resulting in a glut of units flooding the market and depressing prices.
So much for the “expert” opinions of empty theorists and screen-watchers.
Kyle
at 3:05 pm
It is both sad and funny that anyone would consider the opinion of the well known RE Bears to be “expert” in any kind of way. It actually drives me crazy when these idiots try to use (bastardize more like) Economics to justify their rubbish theories, when there isn’t an Economics degree amongst the lot of them. Hell, I have as many Economics degrees as Garth Turner, Ben Rabidoux, Rob Carrick, David Madani and Jason Kirby combined.
Here’s a truly hilarious article on the two newest RE Bear poster boys:
http://www.scmp.com/comment/blogs/article/1834417/expert-economist-hogging-headlines-vancouver-and-australia-not
Joe Q.
at 4:29 pm
The “do they have degrees?” approach quickly falls apart, I think.
You can find well-credentialed guys like Shiller and Roubini (hardly slouches) who are not optimistic about Canadian RE. You can also find guys like Tsur Somerville, who is also well-credentialed and regularly comments positively on RE (at least in Vancouver), but whose funding comes predominantly from RE developers and who has done almost no peer-reviewed scholarship of his own in this area. (As revealed by Ian Young, who you linked to above)
Better to take the “rubbish theories” and dissect them, than to go the “appeal-to-authority” route. IMO.
Appraiser
at 5:13 pm
@Joe Q.
Roubini? Seriously?
“Roubini predicted a recession in 2004, 2005, 2006, and 2007. He was wrong four years in a row. So, in 2008, his prediction appears to be finally coming true. Well, a stopped clock is correct twice each day and as Banerji says, “Roubini is the Boy Who Cried Wolf.”
http://erictyson.com/articles/20081024_1#.VaAw1F9Viko
Shiller? Seriously? Shiller predicted a real estate melt-down in Canada 6 YEARS ago!
PS. Ontario’s mortgage arrears rate was only 0.16% in April, the lowest level since 1990 http://www.cba.ca/contents/files/statistics/stat_mortgage_db050_en.pdf …
Kyle
at 5:17 pm
You’ve missed my point. My point isn’t that you should listen to the person with the most degrees – David Madani does have an Economics degree, but i’d never recommend anyone listen to him. My point is that those widely-quoted idiots mentioned above are all posers with a perfect track record of failure. And yes i’ve often dissected their rubbish theories and found them to be worthless.
I have respect for the well credentialed guys like Shiller and Roubini, they may not be optimistic about Canadian RE (or anything at all for that matter), but unlike the idiots mentioned above their pay checks don’t come from shovelling the same tired, disproven rubbish narrative about Canadian real estate ad nauseum to the willfully blind or bias confirming crowd holding out hopes of lower house prices.
Google Robert Shiller and you won’t find mention about Canadian real estate for many many pages. Whereas if you Google any of the idiots i mention above you will see that being bearish about Canadian real estate is their one and only calling card. They literally have nothing else to their name.
What i find funny is how quickly bear will dismiss the credentialed non-bear Analysts because they somehow are professionally associated with real estate, or banking, and therefore are biased. Yet they’ll accept what the idiots mentioned above without question.
rob fjord
at 3:06 pm
these are signs of a top, irrational exuberance, hubris.
chinese are shifting capital from real estate into their stock market…US interest rates are set to rise, as are global interest rates as the multi decade bond bubble comes to an end. i predict the exact top of torontos real estate bubble…september 11, 2015, a few weeks before a more intense sovereign debt crisis and the bursting of the bond bubble, with janet yellen raising the feds overnight rate during the FOMC meet on sept 16. its been a great ride…now time to watch the tide recede.
Appraiser
at 4:48 pm
O.K. @ rob fjord, let me mark that date down on my calendar.
Hey look, that’s precisely 5 YEARS from the time that Ben Rabidoux predicted a 25-50% drop in the real estate market; 4.5 YEARS after David Madani from Capital Economics said a real estate melt-down of at least 25% was imminent; and 9 YEARS from the date that Barf Turder confidently declared the property market DOA.
…YAWN! (Helpful Hint: First come the predictions, then come the excuses).
jeff316
at 3:44 pm
This was a very interesting post.
I think there are two take-aways from it.
1) The potential for the full price bid to have “spooked” the sellers in the last scenario shows the role of strategy in pricing, bidding and reviewing offers – despite those posters that insist the job of selling real estate takes minimal skill.
2) That, at the end of the day, we all still feel that market value is what *we* would pay for it.
Appraiser
at 6:13 pm
Best article ever regarding predictions and predictors: http://www.washingtonpost.com/business/its-time-to-market-forecasters-to-admit-the-errors-of-their-ways/2015/01/16/acad8a2e-9cd3-11e4-bcfb-059ec7a93ddc_story.htm
“Studies show that the more precise a prediction, the more likely it will be believed, and the less likely it is to be right. These (and other) factors set up viewers to have the most faith in the people who are least likely to be right.”
steve
at 8:51 am
“Fear of selling for less than you might get, which in turn, is greed.
It’ll be interesting to see how that situation plays out.”
We will certainly see how this dynamic changes direction once interest rates begin creeping upwards. Maybe not just yet, but you know it’s coming. It’s a great time to be a seller.
AndrewB
at 4:06 pm
David, hotcakes are what McDonald’s calls their pancakes. How do you not know this?!
condodweller
at 4:11 pm
I wonder if condo prices have something to do with high pre-construction prices and the fact that people naturally want to sell their units higher than what they paid for it. I heard recently that someone in my building bought a unit pre-construction and similar units are selling for slightly higher today than what he/she paid at least four years ago but more likely five or even six. This tells me the original prices in this building were grossly over priced. I paid significantly less than asking for my unit after the building registered but after monitoring prices in the building I have come to the conclusion that I still over paid a little bit based on similar sized units and extrapolating by square footage I should expect to get slightly higher than what I paid a few years ago.
It’s interesting when someone offers you the asking price because what can you say to that? I had a “multiple offer” situation with my first condo but all the offers came in at the asking price. My agent was expecting a bidding war which never materialized and at the end of the day I was thinking to myself what did I expect, they came in with what I was asking. Realistically the multiple offers helped me get the full asking price which I probably wouldn’t have gotten with a single offer.
I can see how someone would get spooked by a quick full price offer though. It would make me question my pricing strategy thinking I priced it too low if someone jumped all over it in such a short period of time. Mind you unless I thought it was priced too low I would take the money and run in this market! I used to work with someone who sold a condo at the height of the market back in 89 and the market corrected right after they accepted an offer. The buyer tried to get out of the deal, but couldn’t, it was just bad timing on their part and by the time they closed it was worth significantly less. IMHO we could be reaching that stage and I agree with rob fjord that it could signal a top.
On the subject of market predictors you have to remember one thing. Just because they were too early with their call doesn’t necessarily make them wrong if it ultimately happens. Admittedly 9 years is a long time to be wrong though….
Appraiser
at 10:34 am
Huh? How wrong to you have to be to be wrong?
Rabidoux predicted that the market correction was actually underway in September 2010, and that there would be a serious melt-down in 2011.
Madani predicted 4.5 years ago that the market would correct within 3 years.
As for GarthTurner…well, who the hell cares what that clown has to say any more.
Appraiser
at 12:18 pm
“For the better part of the past three years, the short-Canada crowd
has been pointing to the country’s housing market and the associated build-up of
household debt as the main vulnerability to the economy. Well, lo and behold, what
is the one sector of the economy that has held up amazingly well and is arguably
keeping us out of a worse outcome in 2015 amid the energy sector rout? Ironically
enough, it’s housing.”
Doug Porter Chief Economist, BMO July 10, 2015.
Jimbo
at 4:38 pm
The one part of the economy that requires growth in other sectors is holding the country together. Now that is a little scary.
rob fjord
at 12:47 am
i have no excuses if im wrong about the top this year, its predicated primarily on a US interest rate rise and the bursting of the bond bubble, if they dont happen, then toronto real estate can continue rising, but if they do happen and tor housing still goes up deep into 2016 then i will admit i was wrong.
Kyle
at 11:08 am
Everyone thought there would be a glut of unsold units downtown, but that never materialized. And unless there is a major economic crisis, a population exodus or Lake Ontario massively recedes giving us a tonne more undeveloped land, don’t expect to see Downtown prices come down. Prime lands have all been bought. Most have already been pre-sold and developed or are in the pre-selling and building phase. As those get completed, the supply of new condos coming on stream downtown will slow to the point were new units make up a tiny fraction of the downtown sales activity. And just like what’s happening to ground-oriented housing in the core right now (i.e. they aren’t building new ones anymore), you can guess where prices will eventually go in the next decade or two.
http://www.theepochtimes.com/n3/1429706-downtown-toronto-at-risk-of-an-under-supply-of-condos-urbanation/
rob fjord
at 11:10 am
but kyle have you seen how many parts of downtown are still old 3 story buildings. yonge street south of bloor is a timewarp… practically the whole road down to the lake could be torn down for 40 story condos. plenty of lots available for condos
Kyle
at 4:14 pm
That’s a pretty naive way to think about it. The fact that they are all three storeys, means it becomes that much harder to get permission to build something 30 + storeys right beside it. Also those 3 storey buildings are on skinny sub 25 foot lots, to build a condo, a developer would need to assemble many many lots, which is not an easy or cheap task.
When it comes to building lots, basically all the low hanging fruit is gone, even the crappy lots (e.g. beside the Gardiner, beside the train tracks, backing onto outdoor or elevated Subway lines) are all gone. When a humungous builder like Daniels Corp is now having to settle for developing tiny lots like 887 Queen Street West. That should tell you something about what land is left available to build on.
https://springrealty.ca/developers-buying-smaller-lots-with-focus-on-end-users/
rob fjord
at 4:00 pm
you call that miserable slice of land wedged into the gardiner low hanging fruit!? no sir…. putting up the cash to buy 3 lots on yonge street is low hanging fruit, and with torontos focus on density intensification the fight for approval is easier now than in decades past. 887 queen west is prime trinity bellwoods location, tiny or not, thats the place people want to live, and their are many of those lots available…tons of them
rob fjord
at 4:10 pm
just clicked your link, you got it wrong, its 887 queen east, not west, not a bad location either. if there is demand, then these lots will be developed, the inventory exists.
Kyle
at 2:14 pm
Sorry i meant Queen East. The demand clearly exists, but the inventory of practicable building lots does not. Obviously developers like Daniels would prefer to buy a 4 acre site and put up one sales office to sell 1000+ units spread across 2 or 3 towers. That’s hugely profitable. But there aren’t any sites like that available, that aren’t already in the hands of a developer. If there were, then a giant like them wouldn’t be dickering around with a quarter acre lot in Leslieville, where the height in storeys will likely be limited to single digits.
In theory, sure developers can try to buy up a bunch of parcels of land (i.e. battle with ma and pa owners, who may not want to sell or may hold out for more), try to get it re-zoned (i.e. battle with City Hall), try to demolish whatever is on it (i.e. battle with Heritage or the local NIMBYs) and then try to put up something bigger and taller (i.e. battle with the City again and then the OMB). But is it economically practicable? No. This pretty much guarantees supply of new units will start to fall in the near future. This is it we’re reached the peak for new supply in the core, and still the demand is not being fully satisfied.
The Donald
at 8:49 pm
I’m going to guess that none of the commenters are old enough to have been through the late 1980’s or the mid 1990’s or even 2001-2003 housing markets. Good luck with trying to sell that condo when rates pick up…when..I don’t know…don’t care…but I’m not the one with a $400k+ mortgage at 2.25%….
Kyle
at 9:08 am
Always funny to hear the patronizing “you’re too young to know better” stories that have little relevance to today, told by people who actually don’t know any better. Sure it’s easy to say, something happened at some point in the past therefore it will happen again in the future. But as the saying goes, for every complex problem there is an answer that is clear, simple and wrong. Most people are probably old enough to remember July 15th 1999, on that day it snowed in Calgary, so based on your simpleton logic, everyone in that city would be a fool not to wear a parka all summer long.