Firm Capital Private Client Report

The resale housing market was much stronger on a national basis in December of 2019 in comparison to the previous December, with sales increasing by 22.7% year-over-year and the national average sales price increasing by 9.6% per CREA. When the general market picks up, so does the luxury market.

Local Logic, a "location intelligence" data company, reported that 11.4% of all searches for resale housing on MLS in Vancouver were for properties above $1 million over the past six months, compared to 7.9% in Toronto, 1.8% in Ottawa, and 0.5% in Montreal.

The chart above shows the key lifestyle criteria that luxury homebuyers were searching for in each of those markets ($1M+ homes). In Vancouver, transit friendly and cafes are important for high-end buyers, in Toronto its transit and schools, while shopping and 'pedestrian friendly' were the most common search terms in Ottawa. Despite the smaller luxury market in Montreal, affluent prospective buyers in that market want a pedestrian friendly location with close access to a grocery store.

Focusing solely on Toronto, approximately 16,000 resale properties sold for over $1 million in the GTA in 2019, which was about 18% of the overall total of 87,825. The 16,000 units sold for a total value of $23.8 billion or $1.52 million on average. The chart below shows that May was the most active month for million dollar home sales, with nearly 2,000 trades. The percentages shown indicated that the monthly breakdown by built form was pretty consistent, with about 79% of the transactions being single-detached properties, 9% semis, 8% condos and 5% townhouses.

The chart above looks at the number of $1 million resale home sales by the number of bedrooms, showing only bedroom types with 500 or more transactions. Homes with four bedrooms and a den were the most common million-dollar property, with nearly 4,100 trades in the GTA in 2019. These properties sold for 98% of the list price on average after 28.3 days on the market (keep in mind that the days on market re-sets when the property is relisted).

However, three bedroom units are clearly the most popular, with the 2,246 transactions selling for 104% of the list price on average in just under 21 days on the market.

There were even 685 two bedroom transactions (485 or which were condominium apartments) that sold for over $1 million in 2019. However, two bedroom units range from a low of about 700 sf to a higher of 4,000 sf.

The map below zooms in on the City of Toronto and looks at the number of properties that sold for $1 million or more by postal code. The grey tones reflect the number of transactions, while the deeper the shade of the red circle, the higher the average price.

One of the most active markets for million dollar homes in Toronto is M2N, which is the Willowdale or North York City Centre area with 305 transactions. The average price for these million dollar properties was $1.77M.

One of the most expensive postal codes is M2L near York Mills and Bayview, where 70 million dollar plus homes sold for $3.20M on average.

In conclusion, the luxury market in Toronto is gaining traction again, but a lack of listings should keep sales lower than they should be based on demand. The lower level of listings will drive prices higher due to multiple offers and entice more people to sell in 2020.

There were only 16,051 apartment completions in the Toronto Census Metropolitan Area (CMA) in 2019 (12,679 condo tenure and 3,372 rental tenure). Analysts were forecasting 25,000 to 30,000 completions at the start of the year. The condominium apartment completions were the lowest since 2012, a year that reflected the slow pre-construction activity in late 2008 and early 2009 due to the global economic crisis at that time. Many of the occupancies scheduled for 2019 would have sold in the much stronger pre-construction markets of late 2014 to early 2016.

The near-record number of apartments under construction in the Toronto CMA at the end of 2019 (64,272), is likely slowing down the trades and the pace of completions. According to CMHC, the average apartment project took 29.7 months to build in 2019 (from footings to occupancy), the highest annual total since 2015's 31.2 months, but twice as long as it took 20 years ago. The towers are much taller, the units are smaller, the sites are tighter, and average unit is more customized.

Rental apartment completions in the Toronto CMA last year (3,372) were the highest since 1993, but new apartment supply overall is not satisfying demand and has contributed to huge rent growth. The chart below plots the vacancy rate in the Toronto CMA (grey) versus the annual rent growth (red) for purpose-built rental apartments only. Rent grew by 6.4% in 2019, the highest growth rate since 2000. Keep in mind that these figures include all rental units, meaning a significant portion of the units have rent control attached, and were subject to a capped annual increase of under 2% last year.

The vacancy rate did increase slightly to 1.5%, but is still half of the rate required for a balanced market. The vacancy rate for leased condos remains low, increasing from 0.7% in 2018 to 0.8% in 2019. CMHC reported that condo rents are up 3.2% annually.

In closing, the rental market continues to be severely under-supplied, and despite the pick-up in rental starts and completions, rents are expected to rise and affordability is expected to worsen in 2020. There should be some supply relief coming, as 2016 and 2017 were record-breaking years for pre-construction condominium sales, but construction is slower, the average unit size has shrunk, and much fewer bedrooms are getting built in comparison to past years with similar unit completions.