[**CHART REMOVED DUE TO COPYRIGHT CLAIM BY REALNET CANADA INC.**]
The final sales figures for new condos from Realnet are in for the December and the year 2008. In short, prices are still going up, while sales have dropped off significantly. [Note: these numbers are for new condos. For resale condos, see my previous posts for more stats on the downtown condo market.]In 2007, over 23,210 new condos were sold in Toronto (GTA). A record year-by a long shot. In 2008, 15,239 units were sold, representing a 34% decrease in the number of sales.
Taking a look at just the month of December, sales are down an astounding 81% year over year. In December 2007, 1024 units were sold versus 198 in December 2008 (GTA).
Yet despite the number of sales falling off a cliff, prices for the month of December year-over-year are actually up over 10% for high-rise condos. This is pretty much the exact opposite of what we have seen in the resale market where average selling prices are down about 10-11% for downtown condos.ÂÂ
[**CHART REMOVED DUE TO COPYRIGHT CLAIM BY REALNET CANADA INC.**]
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How can this be? Unsold inventory is climbing in the new condo market just as it is in the resale market. Shouldn’t the weight of all this inventory put downward pressure on prices? The answer of course is yes, but most developers are not yet facing dire circumstances where there is any need to reduce prices.
Developers have one tool in their arsenal that individual consumers in the resale market do not: they can reduce supply at any time, thereby easing the downward pressure on prices. Very few new developments will be introduced to the Toronto market in 2009. Most that were planned have been placed on the back burner. Developers will be focusing on selling the units they currently have in the pipeline, getting financing to build, and completing construction as quickly as possible.
That being said, whereas 6 months ago there was absolutely no negotiating the list prices of new condos, my personal experience of late suggests discounts of $5,000-$10,000 off of 1 bedroom or 1 bedroom + den units or $15,000-$20,000 off of 2 bedroom units can be fairly easily negotiated at most new developments.
Below are two more interesting charts, one showing total figures for new home sales in the GTA and the other shows the monthly new home sales for the past few years broken up by high-rise (condo) and low-rise (homes).
  [ **CHART REMOVED DUE TO COPYRIGHT CLAIM BY REALNET CANADA INC.**]
What are your thoughts? I always appreciate your feedback. Leave me a comment below or send me an email via my contact page.
All stats  from Realnet. Full report download: Realnet New Homes Market Report December 2008 **REPORT REMOVED DUE TO COPYRIGHT CLAIM BY REALNET CANADA INC.**
01.27.09 at 3:20 pm
Brad J.
Sounds about right. It’s interesting to see that 2008 new condo sales were above or at the same level as years 2000-2004 inclusive, although the first quarters of 2008 may have been much more brisk than the final quarters.
I would also agree that financing a project is key, because new financing has all but dried up. I suppose there is plenty of supply in the pre-owned market for would-be buyers of new developments to opt for existing units instead.
I also wonder about the profit/loss change from a builders’ perspective. A $300K condo may cost the firm $260-270K to develop, plus the comission of the selling/buying agent (~$18K). Suddenly a $10-20K discount to the selling price could affect P&L dramatically.
01.29.09 at 11:09 pm
Toronto Bear
It might be prudent to point out that the trend you highlight has been seen around the globe in the initial phases of the housing busts. Drastic drops in sales which are accompanied by smaller and smaller price increases. I realize you are not in the business of forecasting, but I will state for your readers that this is a global trend and TO is no different. I’d be happy to put a friendly “farmer’s bet” that price declines on new condos are not far off!
01.30.09 at 12:45 pm
Brad J.
Toronto Bear, do you have any sources?
The author is saying that because developers can constrict supply to match demand (on newbuilds only), prices on newbuilds should remain relatively stable. So far that’s the case and it explains the mismatch between hi and lo rise price patterns int he second graph.
Anyone who’s passed Econ 101 can draw a supply/demand curve and verify this themselves.
http://en.wikipedia.org/wiki/Supply_and_demand
01.30.09 at 1:16 pm
Andrew la Fleur
I don’t think anyone is saying that prices will not go down on new condos. But I think that the reason why prices are still rising (or at least not falling), are because the pipeline has essentially been cut off completely, and developers are stubborn/hopeful/delusional about the reality of the market.
I’m sure anyone who reads this blog aced econ 101, because we are just that type of crowd
01.30.09 at 8:07 pm
Toronto Bear
Fair points guy, and no-doubt they also come into play.
What may also come into play:
1. Rising unemployment
2. Lower wages
3. Reduced access to bank loans due to tight credit market
4. Global “panic” and “gloom and doom”
5. Return to historical lending standards
6. Return to historical price/income ratio (approx 3 x income)
7. Return to historical price/rent ratio (currently at or near all time high, probably excluding 1989).
While the supply may be manipulated by the developers, the demand will be vastly reduced. (In this case I define demand not as “desire” to get a mortgage but rather, the ability).
I guess only time will tell, but I know where I’d put my bet.
Not only that, as previously owned (but still very new) condos prices drop, they still do act as “comps”. People looking to buy new are not going to pay insane premiums over a comparable property that is only one or two years old.
Cheers and thanks for your opinions and your time putting together this great resource for your readers!
Toronto Bear
02.03.09 at 9:46 am
Cut The Crap
Hi Andrew,
Prices in Condos strong? I know realtors are notorious for spin but…WOW!
This is coming from the guy that said a recession was good for Canadian Real Estate?
http://www.blogto.com/city/2008/01/us_recession_and_the_toronto_real_estate_market/
02.03.09 at 3:08 pm
Andrew la Fleur
Crap Cutter,
Good to hear from you my old friend.