Toronto’s Unbelievably Fragile Condo Market

img_7318Did you know that Toronto was in a market “lull” when it came to condos? No? Neither did I. I also wasn’t aware that Toronto was sitting on a vast precipice of economic gloom when it came to our condo market. And that is precisely the take away from both the Globe and Mail and Global News about a recent economic statistic about Toronto’s condo market.

My headline is misleading. Deliberately so. But I thought I would try my hand at provocative titles to spur readership. But I have a bee in my bonnet about this kind of reporting which peddles controversial titles while failing to offer insight to investors or potential buyers interested in the market. And while that kind of reporting is common, it’s rare for such significantly differing accounts about the same market pronouncement. For instance, this is the Globe and Mail’s title and opening line to their article:

 Toronto Condo Market Booming Again –

After years of slow growth Toronto’s condo market has come roaring back to life.

Meanwhile this is what Global News had to say:

Unsold condo’s pile up in Toronto, hit 21 year high –

As far as statistical outliers on charts go, the Bank of Montreal produced a dandy on Tuesday that should get some attention from condo market watchers in Toronto.

Both of these articles start with the same source material, a brief report from BMO Capital Markets from late February, but come to different conclusions, spinning stories about either the health or weakness of the same market. The report is frustratingly short, offering little more than the statistic that a record number of condo units came on the market in January. Far from being a new normal, the record number was the result of three things, including delayed projects being finished, regular projects reaching completion and the result of strong sales from 2011.

toronto-condo-boomHowever both these articles are technically accurate, Toronto did have a record number of units come into the market, an amount eight times greater than the monthly average over the last decade. And it is true that the amount of unsold units is at a 21 year high. But to make sense of which article was correct I thought it best to reach out to BMO Capital Markets’ Director and Senior Economist Sal Guatieri, the author of the document. Sal was kind enough to make some time for me over the phone and had some useful insight about each media outlet’s take on the one-off statistic.

“They’re both right,” in answer to my question, “but one is really about the broad health of the market, which Toronto’s market really is. Last year was a very strong year for sales. But in a few years, as nearly 50,000 units are completed and when rates eventually go up, there could be some weakness in the pricing on those units.” Sal had a few other points but they largely revolved around this dynamic, that future challenges to the market are laid in the foundations of our current success.

For journalists this kind of nuanced take on the markets isn’t helpful. It isn’t provocative, and I suspect that there is a fair amount of confirmation bias for those journalists who feel strongly about the market’s relative health. Regardless, there simply isn’t enough information in the document released to promote one view over the other, and yet that is exactly what writers at the Globe and Global News pursued, versions of the story that were both more provocative and definitive than accurate. It might help with readership, but it does nothing for informing investors.

That’s the real story, and the underlying problem of reporting business news. It isn’t advice so much as a view point. Most readers will not search for the original source, nor have an opportunity to corner the economist and author to find out more. And yet depending on which story you came across you might be forgiven for thinking you had gained some real insight into the nature of Toronto’s Real Estate Market.

On the other hand, I’m highly mistrustful of the news anyhow, which is my own confirmation bias. As the author Jon Ronson once said, “After I learned about confirmation bias I started seeing it everywhere.”

 

 

 

Toronto has a Real Estate Problem

imageIt is a common family tradition for my father and me to head down to the St. Lawrence market in Toronto for a bacon sandwich and then grab a coffee before heading off to the bookstore. As my family has grown it now frequently includes our significant others, especially my daughter Sophie who with her own limited chomping power continues to devour an ever growing portion of my breakfast!

However our trips to the bookstore have been dwindling in recent months. Nicholas Hoare, a staple on Front Street closed it’s doors in early 2013. The next nicest bookstore to head to is Ben McNally’s, up on Bay by Adelaide. But this year’s inclement weather has meant we frequently didn’t bother to make the trek.

Bookstores in general in Toronto aren’t doing so well. Last month we lost 3 bookstores; the Cookbook store, the Annex location of Book City, and The World’s Biggest Bookstore. Even Indigo/Chapters are feeling the pinch. This loss has been noted in several newspapers, but nobody is sure what to do.

Ben McNally, when I stopped by his store last week, told me that we don’t have a book problem in Toronto, we have a real estate problem. Inflation in Canada is around 1%, but every year rents go up on retailers. Small businesses, whether they be local grocers, tailors or bookstores operate with fairly fixed margins, but find that their rent is frequently the source of where they are being squeezed. They do consistent business with loyal customers, but can’t increase their sales fast enough to keep up with their rents.

This is an experience mirrored in residential property as well. A new report found that 50.6% of young Canadians in Ontario between the ages of 20-29 are still living at home. What’s keeping these young Canadians at home? There are many factors, but the most common is cost. The cost of living is simply out-pacing what you can earn.

There are two lessons here:
1. It pays to get kids saving and planning their savings early. Not just RESPs, which are savings parents put away on behalf of their kids, but getting kids to save and invest their money once they start working, especially if they can’t afford to move out yet. A solid financial plan will give them a better shot of keeping up with rising costs.

2. There is only so much financial planning can do. At some point cities and councilors and neighborhood associations are going to have to wrestle with the fact we need lots more building to go on within cities to keep living standards affordable and attainable. Maybe that can be an election issue.