Still for Sale and Even Cheaper

You may recall a PROFIT CONFIDENTIAL commentary last month in which I wrote about the Toronto real estate market. In specific, I was in downtown Toronto last month and called a couple of real estate agents to see some for-sale condos. I wanted to see first-hand how the much-talked-about Toronto condo market was faring.

My findings: The condo market was cooling quickly, with sellers willing to take a 10% to 15% loss from what they had paid one to two years ago. My prediction at the time: Prices would ease even more.

I remember the real estate agents telling me, “Don’t put in too low of an offer… They don’t need to sell.” One agent even called me a couple of days later to tell me an offer was coming in on one of the units and that I’d better move quickly.

What’s the status with units today? Each of the units I saw is still for sale, extending the important “number of days on the market” indicator even more. In two cases, prices have been reduced, and still no takers.

What was once a very hot market has cooled considerably — but you don’t read about it much in the newspapers. Agents used to have buyers lined up to make offers; now they are calling me looking for an offer.

Only thirty days ago, these real estate agents were telling me this specific market was less vibrant than it used to be, but still a very active market. Now they’re telling me units are just taking a “little longer” to move. One industry insider just told me a major player in this market shelved plans for one of two new planned high-rise residential buildings, and that sales at the building that will go ahead are very slow.

The weak real estate market is not confined to the Toronto condo market either. I get e-mails from readers daily telling me the property market in their areas has slowed down considerably too. From what I can tell from these e-mails, it’s the high-end home market where real estate is now moving slower and slower.

The stocks of all the major high-end builders tell the story. WCI Communities and Toll Brothers, both billion-dollar high- end home builders listed on the NYSE, find their stocks off at least 10% from their March highs. And in respect to both stock price charts, a classical head-and-shoulders pattern is easily visible.

I see the stocks prices of the major home builders falling even lower. And unless there were a special situation, I wouldn’t be a buyer in the real estate market today. My humble opinion is that we are going to soon find out that even a slight hike in interest rates will have a profound effect on consumers’ thoughts about moving-on-up.