Are Smoke Signals Coming From Toronto’s Rental Market?
March stats came in last week and on the surface they were pretty boring. Sales were flat and average price increases for the GTA came in at a meager 0.5 %. Not nearly as exciting as Vancouver where sales plunged 30% from March 2019 and the MLS Home Price Index showed prices dropping 7.7%. Wait a second, maybe boring isn’t something to complain about! While TREB stats overall were flat, some of the sub-markets had things to say. I discussed the importance of giving consideration to sub-markets in my last post that you can read here. So is Toronto’s rental market giving us a hint of what’s to come for the resale condo market?
Toronto’s condo market is a segment I have felt is particularly important to keep a close eye on. For one, it has been a market segment that has been buoying average prices for the GTA. While less affordable segments faltered with the introduction of new policies, condo prices continued to see strong price increases. The other reason, is that I have been anticipating inventory to improve in the near future due to the record number of completions that are expected – highlighted here.
Toronto’s resale condo market statistics for March:
- Sales dropped 14.1% from March 2018
- Sales in March were 27% less than February. A trend typically reversed as Sales normally increase from February to March.
- Prices were up 2.3% from this time last year. Year- over- year price appreciation for the past 11 out of 12 months has been closer to 7%.
- New Listings are flat, active listing are up 13% from March 2018
The above noted statistics don’t highlight any change in supply, but do show a slow down in demand. The change of pace in the resale condo market in March caused me to take a second look at Toronto’s rental market. After all Toronto’s rental market in 2016/2017 when prices were increasing rapidly was drum tight. Rental Inventory during that 2 year period decreased 7 out of 8 quarters and was down 14-19% in each quarter in 2016. What has Toronto’s rental market been doing lately?
Toronto’s rental market has seen 3 consecutive quarters of double digit supply increases:
10% in Q3 2018
17% in Q4 2018
22% Q1 2019
So what does this mean? Toronto’s rental market could be sending a signal the resale condo market should heed. It’s possible an increase in supply over demand in Toronto’s rental market could be a leading indicator of an increase of new listings to come in Toronto’s resale condo market. When investors have a harder time finding a tenant at their desired price, more of those investors will choose to sell their unit. This is particularly true if price appreciation for condo’s flattens towards inflation range as it did in March. Those in negative equity positions, who were forecasting high single digit or double digit price appreciation will be regretting their high leverage investment decision.
In a city with a vacancy rate hovering below 1%, an increase in inventory is a welcome sign. More inventory in the resale condo market is expected to have a positive impact on sales. An increase in choice for Buyers in an under-supplied market will create a healthier, more stable market. However, there could be some important takeaways here.
If supply continues to outstrip demand in Toronto’s rental market, we should see supply improve on the resale market. An improvement to supply while affordability limitations are decreasing demand could lead to improved market conditions for Buyers. Sellers looking to get to market in the near term might experience less competition earlier in the year vs later. Either way, monitoring inventory levels in Toronto’s rental market might be a metric you allow to influence the timing of your purchase or sale going forward.
