What would happen if, say, five hundred units were listed at the same time, all within a few hundred feet of each other?
Do you think this would have an affect on the pricing?
It’s simple supply and demand, folks. Let’s take a look at what could happen, in the worst case scenario…
myeo
at 8:52 am
Interest rates will also be higher when a lot of these units simultaneously come on the market, further lowering prices with all else being equal.
One of the few value influencers that could keep prices stable is if the investors decide not to dump their inventory and choose to rent them out (quite likely given Toronto’s 1-2% vacancy rate — or rather 0-0.5% vacancy in desirable locations). If an investor can get $1,200 per month net (after all expenses) for a $300,000 unit, that’s just below 5%. Not a bad return on investment compared to other investments these days.
Joe Q.
at 9:28 am
I’ve gotta get on the soapbox for the moment and sound a note of caution about the “1-2% vacancy rate” figure that is so frequently quoted, because it doesn’t really mean what most people seem to think it does.
These vacancy numbers come from the CMHC. I gave a description of their methodology in a comment on this blog back in 2011, but to make a long story short, these are the conditions that a unit must meet before it is considered “vacant” by the CMHC:
(1) It has to be part of a building that has at least three rental units. (Basement apartments, duplexes, houses for rent are never considered “vacant”)
(2) It has to have been on the market for at least three months prior to the survey date.
(3) It has to be available for immediate rental (physically empty).
(4) The landlord has to disclose that it is a rental (it is a voluntary survey conducted in person and by phone).
http://www.cmhc-schl.gc.ca/en/hoficlincl/homain/stda/suretaanme/suretaanme_002.cfm?renderforprint=1
I do think there is some value in the CMHC vacancy numbers when looking at trends over time within a particular city, but due to the peculiarities of their methodology, I don’t think that they’re useful for comparing cities to one another (due to differences in housing stock) or for single-point evaluations.
Paully
at 8:53 am
What might happen? Take a look at Vegas, Phoenix, Ireland, etc. to see what happens when listings overwhelm demand. Take a deep breath, because a lot of those new-condo owners will end up underwater.
The good news is that the era of stupid multiple offers might finally come to an end.
Better sell your investment condos now, while there is still hope.
johnny chase
at 10:01 am
Dave – where did you park your car?
David Fleming
at 11:26 am
@ Johnny Chase
You know that tiny side street where the cops always park to do radar? I parked there. Then hauled ass in 32-degree heat in a full suit to that median. I was drenched. It was disgusting.
Chris
at 3:58 pm
River City is just one development, and what you’re referring to is all of the West Don Lands, which encompasses not only market housing, but also:
– TCHC housing, which includes market, subsidized, and senior’s housing
– A George Brown student residence
– A new YMCA
Much of the market housing is being used as the Athletes’ Village for the Pan Am Games in 2015, and they’re only selling off one phase of this right now – Canary District. This is being done deliberately in order to avoid flooding the market, and to avoid the type of problems experienced in Vancouver when they built their village along False Creek.
Horrido
at 4:18 pm
That’s “Absorption Of Inventory”, not “Absorbtion”.
A Grant
at 7:52 pm
Completely agreed – but how would you stop it? If a bunch of land is available and city council approves one development, a precedent is set. I mean city council can’t just approve one building and deny permission for a similar building next door because they don’t like the timing.
It would require staggered development on the part of developers – but it’s not their money at risk. It’s the buyers/investors. So what incentive do they have to stagger the timing?