Does Price Per Square Foot Even Matter Anymore in the Toronto Condo Market?
There was a time when all that mattered for condos was price-per-square-foot. It feels like that metric isn't as important anymore.
I was in Vegas last week. I very rarely take days off and I can't remember the last time I actually left Toronto for more than a day but when my wife was asked to go to a conference in Vegas for her job, I didn't skip a beat and immediately logged onto Expedia and booked myself a flight. I've been to Vegas over 30 times and it is, without question, my "happy place". And as an added bonus, wifey had never been before so it was a chance for me to show her why it's the real happiest place on earth.
When we were in our hotel room, wifey looked around and said "do you think this is about the size of a Toronto studio condo?" I smiled. Whenever I hear her talk about real estate, I can't help but smile. Our room was about 400 sq ft, which is about the size of a studio these days in TO. Then I got to thinking...
Did it really matter if our room was 350 sq ft? or 400 sq ft? or 450 sq ft? Would we have paid more if it was 50 sq ft larger?
I think you can see how this inevitably triggered something in my real-estate-spreadsheet-brain and I began writing this blog post in my head in between poker hands at Caesars Palace.
There was a time not too long ago where price-per-square-foot metrics really, really mattered. I mean, why would anyone pay $850/sq ft when you can get a similar condo for $825/sq ft? This phenomenon was even more prevalent with pre-construction condo sales - all anyone asked was "what's the psf?"
Oh, how things have changed.
Now I'm not saying that price-per-square foot no longer matters at all. In fact, I think it actually matters more to people like myself who obsess over these metrics to determine relative value between listings in TO.
But I think to buyers, and specifically first-time, entry-level condo buyers, that metric doesn't really hold as much weight as it used to.
Buyers are buying in absolute terms, not relative terms.
What does this mean? It means if someone is looking for an entry-level 1-bedroom condo (which today means something in the $525k to $550k range), the size of the unit itself no longer matters nearly as much as it used to. All that seems to be most important is "it is a real 1-bedroom unit? And by that, I mean is there a place to put my bed that isn't directly in front of my fridge?"
If the answer is yes, the actual size of the unit is secondary.
To me, this is a difficult thing to witness. I pour hours into my own pricing analyses looking at psf trends, relative psf values between buildings and neighbourhoods, trying to find "true market value" of every listing. But when I see a 450 sq ft 1-bedroom condo sell for $550,000 with 20 offers, I can't help but feel a little deflated (this is an actual sale at 1 Scott St from last week).
Did that buyer care that they paid $1222/sq ft? Or that nothing comparable has ever sold for that much per square foot? Or did they only care that they got a 1-bedroom condo, steps to Union Station, for $550,000?
This buyer, like many first-time entry-level condo buyers, bought based on absolute value.
When I talk to clients who lose out on bidding wars, or when they see a unit sell for $20k or $30k more than we expected, I end up having the same debriefing session afterwards - buyers are shopping their budget, not what the unit is worth on paper (ie, relative value is thrown out the window).
In simple terms, if a buyer has a $550k budget, they will "fire" $550k offers until they win a bidding war, whether that means they end up paying $1100/sq ft or $1200/sq ft (or more). They're just going all-in.
As an agent, I try my very hardest to keep my buyers disciplined. In the end, fundamentals like price-per-square-foot are so important, that you sometimes have to let someone else "over pay" and not get carried away. But when it feels like so many other buyers aren't following the same logic, it can make for a very frustrating process.
Right now, I have a handful of entry-level condo buyer clients (end-users and investors) who have probably heard me talk about this subject over and over for the past several weeks so if you are reading this, stay calm, stay focused, and stay disciplined. Just because some buyers are throwing logic out the window, doesn't mean we will.
Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)