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Slumping markets take toll on realtors
March 10, 2009
Toronto Star
Michael Manley has "seen the writing on the wall" as far as the Toronto real estate market is concerned. And it's not pretty.
Last week the veteran broker closed his Prudential Plus brokerage on Kingston Rd. in Toronto's Upper Beach neighborhood, relocating his agents to other offices.
"There was no doubt that it was going to be tough times ahead," Manley said. "Sales have been down significantly across the city and it's only going to get worse."
Manley, who relocated his agents to his two smaller offices, figures he will end up with 65 agents, down from about 85.
"Some people call it downsizing, I call it right-sizing," he said. "In order to survive, realtors are going to have to move to smaller offices with less overhead."
After a poor spring season last year, Manley says he decided the market had peaked, prompting the move. He sold his Kingston Rd. head-office building, where he had been doing business since 1991, to another realty firm.
Analysts have been expecting a consolidation in the industry similar to the previous recession in the early 1990s, when realtors exited the business in droves as housing prices slid for seven years.
Manley, who has survived the past two housing downturns, thinks this one will be more severe. One big reason is the "overbuilding in the condominium market," which he says was one reason why the last downturn was crippling.
"Right now, we're just about the only condo market that isn't suffering globally, but it's going to happen," he says.
According to Canada Mortgage and Housing Corp. figures released yesterday, national housing starts fell for the sixth straight month in February, down a larger-than-expected 12.3 per cent to a seasonally adjusted annual rate of 134,600 units. That's after falling 10.9 per cent in January.
But in the Toronto market, starts edged up by 6 per cent to 26,700 units in February compared with the month before, according to CMHC.
One reason why Toronto bucked the trend is condominium development. According to the CMHC, more than 36,000 condos were under construction in the Toronto area at the end of January, with the bulk of them set to be completed this year and next.
"There are certainly concerns over the amount of units being built and the amount of investor activity," said Robert Feldgaier, senior director at Altus Group Economic Consulting.
An earlier report by the housing research firm reiterated fears over the burgeoning inventory of condominiums in the Greater Toronto Area.
"For some time, we have been warning that the longer the GTA had unsustainable levels of new condominium apartment sales, the more likely would be a significant market adjustment," the report said.
According to Altus, 94 projects were launched in the GTA in 2008, with 55 per cent of the units still unsold by the end of the year.
Altus forecasts that project cancellations will be more frequent this year as "many projects in the pre-construction stage are far from achieving a sufficient per cent of units sold to obtain financing."
Another looming problem, analysts say, is that up to 40 per cent of some buildings – particularly in the downtown core – may have been purchased by investors. In a downturn, they may decide to sell their units if they cannot make a return, causing a mass rush to the exit and tumbling prices.
However, Feldgaier says there are more end users and fewer speculators in the market this time around compared with the 1990s.
What concerns realtor Manley though is that the condo universe is much larger today than it was during the previous downturn.
Condo sales accounted for more than half of all new home sales last year for the first time, compared with a traditional average of one quarter to a third of sales.
"The condo market is extremely important because if those first-time buyers can't sell their condos then they can't move up to the Riverdale or Beach home, it affects everyone in the market," Manley said. "If that's the case, you have a huge ripple effect."
To insulate himself from a downturn and to retain staff, the realtor has also decided to improve the commission split with his agents – essentially paying himself a third less in every deal.
"Agents will be looking for the best deals out there as well when times get harder," he said. "That's the reality."
Last week the Toronto Real Estate Board reported that existing home sales fell by 32 per cent in February, compared with a year earlier.
The board recorded 4,120 sales in February, compared with 6,105 sales in the year-earlier period.
The average sale price of a home was $361,305 in February, compared with $382,048 a year earlier, down about 5 per cent, or $20,000.
If there was a silver lining, it was the board reported prices and sales month over month topped January levels and prices, while still lower than a year ago, weren't falling as quickly as in earlier months.
March 10, 2009
Toronto Star
Michael Manley has "seen the writing on the wall" as far as the Toronto real estate market is concerned. And it's not pretty.
Last week the veteran broker closed his Prudential Plus brokerage on Kingston Rd. in Toronto's Upper Beach neighborhood, relocating his agents to other offices.
"There was no doubt that it was going to be tough times ahead," Manley said. "Sales have been down significantly across the city and it's only going to get worse."
Manley, who relocated his agents to his two smaller offices, figures he will end up with 65 agents, down from about 85.
"Some people call it downsizing, I call it right-sizing," he said. "In order to survive, realtors are going to have to move to smaller offices with less overhead."
After a poor spring season last year, Manley says he decided the market had peaked, prompting the move. He sold his Kingston Rd. head-office building, where he had been doing business since 1991, to another realty firm.
Analysts have been expecting a consolidation in the industry similar to the previous recession in the early 1990s, when realtors exited the business in droves as housing prices slid for seven years.
Manley, who has survived the past two housing downturns, thinks this one will be more severe. One big reason is the "overbuilding in the condominium market," which he says was one reason why the last downturn was crippling.
"Right now, we're just about the only condo market that isn't suffering globally, but it's going to happen," he says.
According to Canada Mortgage and Housing Corp. figures released yesterday, national housing starts fell for the sixth straight month in February, down a larger-than-expected 12.3 per cent to a seasonally adjusted annual rate of 134,600 units. That's after falling 10.9 per cent in January.
But in the Toronto market, starts edged up by 6 per cent to 26,700 units in February compared with the month before, according to CMHC.
One reason why Toronto bucked the trend is condominium development. According to the CMHC, more than 36,000 condos were under construction in the Toronto area at the end of January, with the bulk of them set to be completed this year and next.
"There are certainly concerns over the amount of units being built and the amount of investor activity," said Robert Feldgaier, senior director at Altus Group Economic Consulting.
An earlier report by the housing research firm reiterated fears over the burgeoning inventory of condominiums in the Greater Toronto Area.
"For some time, we have been warning that the longer the GTA had unsustainable levels of new condominium apartment sales, the more likely would be a significant market adjustment," the report said.
According to Altus, 94 projects were launched in the GTA in 2008, with 55 per cent of the units still unsold by the end of the year.
Altus forecasts that project cancellations will be more frequent this year as "many projects in the pre-construction stage are far from achieving a sufficient per cent of units sold to obtain financing."
Another looming problem, analysts say, is that up to 40 per cent of some buildings – particularly in the downtown core – may have been purchased by investors. In a downturn, they may decide to sell their units if they cannot make a return, causing a mass rush to the exit and tumbling prices.
However, Feldgaier says there are more end users and fewer speculators in the market this time around compared with the 1990s.
What concerns realtor Manley though is that the condo universe is much larger today than it was during the previous downturn.
Condo sales accounted for more than half of all new home sales last year for the first time, compared with a traditional average of one quarter to a third of sales.
"The condo market is extremely important because if those first-time buyers can't sell their condos then they can't move up to the Riverdale or Beach home, it affects everyone in the market," Manley said. "If that's the case, you have a huge ripple effect."
To insulate himself from a downturn and to retain staff, the realtor has also decided to improve the commission split with his agents – essentially paying himself a third less in every deal.
"Agents will be looking for the best deals out there as well when times get harder," he said. "That's the reality."
Last week the Toronto Real Estate Board reported that existing home sales fell by 32 per cent in February, compared with a year earlier.
The board recorded 4,120 sales in February, compared with 6,105 sales in the year-earlier period.
The average sale price of a home was $361,305 in February, compared with $382,048 a year earlier, down about 5 per cent, or $20,000.
If there was a silver lining, it was the board reported prices and sales month over month topped January levels and prices, while still lower than a year ago, weren't falling as quickly as in earlier months.
