Toronto Realtor, Brian Madigan has compiled his own Real Estate Index for Toronto and the GTA areas.
Brian names his index, ORES (Ontario Real Estate) Index and it compares Toronto Real Estate Homes, Condos ( North,East,Central,West) in price differences along with the current price of Gold, Stock Markets and Oil.
This is a very good price comparison of different Toronto Real Estate areas and also when and were this Real Estate Market is heading.
By Brian Madigan LL.B.
The markets have shown a significant sign of recovery this Spring, particularly during the month of April which saw a 6.51% increase in average prices for single family homes in the GTA.
This follows a substantial stock market crash, a worldwide financial crisis, and elections in both the US and Canada during the last quarter of 2008.
I set up the ORES Real Estate Index last year. In many ways it is like the CPI (consumer price index) in the sense that it is designed to track values over a period of time.
The Index commenced 1 January 2004. All related prices were converted to 100, so everything to be compared would have a common starting point.
Single Family Housing in the GTA:
When you are looking at house prices for single family homes in the GTA, you will find the following:
129.80.....30 April 2009
123.28.....31 March 2009
123.08.....28 February 2009
117.93......31 January 2009
122.85......31 December 2008
124.80.....30 November 2008
120.38.....31 October 2008
124.60.....30 September 2008
131.53..... 30 June 2008
132.11......31 May 2008
132.24 .... 30 April 2008
127.42..... 31 March 2008
127.86..... 29 February 2008
125.63..... 31 January 2008
126.31..... 31 December 2007
130.76..... 30 November 2007
130.98..... 31 October 2007
100.00..... 1 January 2004
This means that the average price for single family homes in the Greater Toronto area has increased 29.80% in 64 months. So, this is 0.46% per month or 5.59% per year.
You will also see that the height of the market was reached in April 2008. Traditionally, the peak is reached in May.
There were several remarkable factors that occurred in the month of October 2008:
Worldwide stock market crash
Worldwide liquidity crisis
Commodity price declines in every sector
Expectation of a worldwide recession
expectation of numerous bank failures
These factors were very unusual, with media reports noting comparisons to the Great Depression in the early 1930's.
So, all of these numbers have to be viewed in the context of the world markets and the international media in the month of October.
The year ended at 122.85 and trended lower in January to 117.93.
Sales volumes were off substantially: down by half in January, one third in February, one fifth in March and only by 7% in April.
The good news was that the average price increased by 5.14% in February to 123.08, and slightly more in March to 123.28. There was a 6.51% increase in April to 129.80.
Condominium Market in the GTA:
Here are the comparable statistics for condominiums throughout the GTA:
112.80......30 April 2009
113.56......31 March 2009
112.65......28 February 2009
112.53......31 January 2009
122.61.... 30 April 2008
123.17..... 31 October 2007
100.00..... 1 January 2004
You will notice that the overall performance is less than the comparative single family home. The condo prices dipped slightly during the month. The performance continues to trail the single family homes.
Central Condominiums :
Let's have a look at the parts of the condo market. The numbers for centrally located condos illustrate a very notable decline. These are the ones in downtown Toronto:
140.00......30 April 2009
135.32......31 March 2009
134.89......28 February 2009
136.76......31 January 2009
152.99.... 30 April 2008
153.06..... 31 October 2007
100.00..... 1 January 2004
There has been a trend to downtown centrally located condos over the last four years.
That appeared to be changing over the last few months. While the overall downtown condo market seems vulnerable due to increased product supply, last month the short term trend subdued and the market rebounded.
East Condominiums :
These are the condos in the eastern areas served by the Toronto Real Estate Board. Here's the performance:
121.98......30 April 2009
122.58.....31 March 2009
122.08.....28 February 2009
122.62.....31 January 2009
130.07.... 30 April 2008
121.04..... 31 October 2007
100.00..... 1 January 2004
This market generally has performed quite well. The performance has been very stable and has shown both increases and decreases in line with single family homes.
North Condominiums:
Here the numbers here are somewhat lower:
104.50.....30 April 2009
117.12.....31 March 2009
116.33.....28 February 2009
112.42.....31 January 2009
111.09.... 30 April 2008
125.36..... 31 October 2007
100.00..... 1 January 2004
While the north condos continue to show relatively poor performance, you will notice that it had been showing stability.
I should point out that the few months following inception of the index were not kind to the north condos.
They dropped about 30% in value. If the index were changed to 48 months rather than 64 months as it is now, the performance here would be considerably different. However, that does not account for the dismal April performance.
West Condominiums:
The west condominiums increased slightly over the month and overall the performance is demonstrating reasonable stability:
122.52.....30 April 2009
119.89......31 March 2009
117.68......28 February 2009
118.18......31 January 2009
127.50.... 30 April 2008
119.39..... 31 October 2007
100.00..... 1 January 2004
This market is now generally in line once again with other markets.
Market indicators, factors and conclusions:
There are a few general conclusions that may be drawn:
You were better to have a downtown Toronto condominium over the last 5 years (actually 64 months) than other property (140.00)
Single family homes provided a reasonable benchmark rate of return (129.80)
West condominiums seem to be reasonably stable (122.52)
East condominiums performed reasonably well (121.98)
North condos continue to be the poor cousin in the market (104.50)
The downtown Toronto Condominium market is the best performing residential real estate over the last five years in the GTA.
By comparison, it rates particularly well in relationship to other financial and economic benchmarks. But, that does not make it a "buy". It has recently been showing its vulnerability to the market forces.
It is probably overbuilt now, and further declines may be expected. Essentially, there is too much new product coming onto the market. But, that doesn't account for its superior performance in the month of April.
Mark Twain once said "Buy land, they're not making it anymore", but that's really not the case particularly when you are talking about downtown condos. And, while quoting Mark Twain don't forget that he also said "Get your facts first, then you can distort them as you please."
Other Market Comparisons:
Sometimes, it is wise to look at some other market factors. So, I have converted some popular indexes and commodity prices to the ORES format.
Basically, that means that all other indexes (and commodity prices) are given a base level 100 starting point as of 1 January 2004.
To illustrate the current trend, the March, February and January 2009 numbers follow in brackets. Here is the comparison:
82.87.........(75.38)........(62.87)........(77.66).......Dow Jones Industrial
For most of the last five years, you were best to speculate in the price of oil, however you will now see that with all the recessionary forces in play that gold is the number one performer.
The real estate index has moved up, and despite dropping prices is now well ahead of the stock market. As an asset class, it is now third, whereas six months earlier, it would have been fourth.
This fact reinforces that real estate is a good long term performer.
Our own stock market has faired pretty well compared to the substantial declines in the US. At the lower end of performance is the US stock market with all three indices at the bottom of the overall performance scale.
Real estate seems to be about where it should be: not too high and not too low. As I have often stated, real estate generally shows a 5% long term return, and right now the numbers show 5.59% as measured over the last 64 months.
You will notice that when it comes to prices and a recession, real estate is a relatively strong performer.
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,
