There’s no denying that Toronto’s housing market is slumping badly. In the span of four months, average home prices have dropped by roughly 20 percent. In April, a Toronto home sold for $920,761 — August data from the Toronto Real Estate Board show an average selling price of $732,292.
But strangely enough, condominium prices haven’t budged much since the Ontario government instituted housing rules in April to tame the market. Condo prices across the Greater Toronto Area have gone down by a mere five percent since April — they’re still averaging well over half a million dollars, a price tag that remains unaffordable for most young people.
The condo supply crunch
One explanation for this scenario is the shrinking number of condo units that have been available on the market since 2016. “Condo prices were sky-rocketing from 2007 to 2011. That made developers start building rapidly, so we saw that between 2014 and 2016, the market was getting flooded with condos,” says Zoocasa CEO Lauren Haw.
“But from last year, there were very few new condos going live, because land has gotten more expensive, and naturally we have reached a point where there are fewer “easy” builds — there aren’t too many big parking lots left to build on,” says Haw.
According to the condo research firm Urbanation, 94 percent of all condo units that came onto the market were sold in the second quarter of 2017, leaving only 6,796 condo units available for sale in the GTA as of August 2017, the lowest level in 15 years. Clearly, demand continues to outpace supply, buoying the condo market.
The demand factor
The Ontario government’s new housing rules that were slapped on the market in April included a 15 percent tax on home purchases made by non-Canadians.
But the dynamics in the condominium market in the lead up to this tax were different from the housing market as a whole — because the gap between single-detached or semi-detached house prices and condos had been growing so rapidly in the last two years, more and more people started buying condos. At the same time, there were fewer units available on the market — the combination of these factors has possibly negated the intended effect of the foreign buyers tax.
“Condos are still much more affordable than homes, and so the demand continues to remain strong despite those new housing rules that shocked the market,” says Haw.
Condo living, according to Haw, is also becoming more culturally acceptable in a city like Toronto, although she does point out that it will take a few generations for that desire to own a house to dissipate.
The condo market is not seasonal
Toronto realtor David Fleming believes that condo prices have not gone down much because they aren’t subject to the usual seasonal cycles of the housing market.
“In summer, the housing market usually slows down, so this isn’t atypical. Families take vacations, kids are off school, no one’s buying or selling houses. The condo market is not about families. It’s about investors and young people who live and work downtown. So you’re looking at 12 months of activity which is why you haven’t seen a slowdown in condo prices,” says Fleming.
As a matter of fact, Fleming is casting immense doubt on the 20 percent overall decrease in home prices across the GTA. “I don’t know a single realtor out there who can actually find home prices dropping by 20 percent, so I’m not sure how that data was quantified. We are just not finding that million dollar home that’s now worth $800,000 — it’s around $950,000.
Zoocasa’s Haw, however, is convinced that the Toronto market, especially for houses, is in a “pricing valley”. “It’s a brilliant time to buy a house in the GTA because the market has bottomed out. I mean maybe prices will keep going down, but I think it’s more likely they will just flatline, or go up.”
As for condominiums, Haw thinks it is unlikely they will go down in value. “Land is expensive, and permits and processing are taking up to four years now. Meanwhile, condo living is gaining popularity, becoming nicer, and maintenance fees are getting lower for new builds.” Those combined factors will spare the condo market of any kind of slump, at least in the near future.