New home sales in October have many market watchers puzzled. There are some who say they were an anomaly. Others say there are perfectly good reasons the market behaved as it did.
Bottom line for high-rise condo builders, October was a stunner. With 3,159 sales reported, it was the best October on record for high-rise. Even low-rise sales perked up. Builders reported a total of 1,376 detached and townhouse sales for the month.
All in all, it was the best month the GTA new homes market has seen in five years.
But before uncorking the champagne there are some things worth noting and they may take the fizz out of the Dom Perignon.
October's price index for low-rise homes rose a whopping 10.9 per cent from the same month last year and, at $500,532, have for the first time broken the half a million mark, according to RealNet Canada. High-rise condo prices rose 5.7 per cent from October, 2009 and have started to make up the 10-per-cent drop in prices reported in September. The GTA price index for new high-rise condos now sits at $424,327.
What does it all mean? Well, for first-time buyers looking for a detached starter home, forget it. Detached homes are just too pricey for the average young family. "What we are seeing is that townhouses have become the replacement for single family starter homes," says Sam Crignano, a partner in Cityzen Developments. His Waterlilies project in Oakville released 210 stacked townhouses for sale in October and immediately sold 150 of them.
Why? A price of just $290 a square foot, bringing them well within the reach of young families.
Indeed, 59 per cent of all October low-rise sales were for homes offered below that GTA index price.
"The demand in low-rise is obviously for less expensive product - and that usually means townhouses," says RealNet's George Carras.
And what of high-rise condos? After a summer when presentation centres were ghost towns, how come September and October saw them become as popular as a Justin Bieber concert?
Mr. Crignano says it was an anomaly for which there is no simple explanation.
"It will probably be the last blow-out until spring when builders start bringing new projects onto the market again," he says.
Eve Lewis of MarketVision Realty Corp., a leading new condo marketing and sales agency, is on the other side of the coin. She says the boom months are easily understandable given four factors.
The first is a large base of both foreign and domestic investors. They help make the GTA the largest new condo market in North America. With 100,000 people immigrating to the GTA every year, that means continuing demand for rental units. They can invest with confidence in the future.
The second is simple. Last summer was probably the best in memory for great weather, she says.
"People wanted to spend their downtime at the beach, at the cottage nor just in their own backyards," she says. "They didn't want to spend it trooping though presentation centres."
Number three was a build-up of demand. People were deferring looking for new homes and builders were putting off launches of new product. New project launches are key times for sales because that is when buyers get the best price and the best selection of suites. No launches equal fewer sales.
In September and October, about two dozen new projects were launched, offering a smorgasbord of choice for all types of buyers.
Finally come prices. New condo prices dropped 10 per cent in September and regained only about half of that in October. Mind you, how they did it was by shrinking the size of suites and not the price per square foot. Construction costs are what they are; profit margins have to stay high enough to justify investment. If you want to lower prices to make suites more affordable, reducing their size is the easiest path.
It worked. According to RealNet, 79 per cent of all high-rise sales in October traded hands below the GTA index price of $424,337.
"Look at those four factors and there is no mystery about the boom in sales this fall," she says.
My own view, however, is on the gloomy side. A boom in sales may be great for builders and help drive the economy, but what about the longer term? Traditional single family homes are now out of the reach of most young families. Affordable condo suites are reaching the stage that they make roomettes on trains look spacious.
What is going to happen to quality of life 10 years down the road?