In hot real estate markets like Toronto, many first-time homebuyers set their sights on condos as an accessible and affordable way to get into the market. These Toronto condos are often their first steps on the property ladder, usually in hopes that ladder will lead upwards towards a townhouse or a detached home.
But, recently, prices have been ballooning on these traditional starter homes and that means that many buyers who might have been able to afford a condo a few short months ago are finding themselves priced out of the market.
According to the Toronto Real Estate Board, March was a busy month. The board reported a year over year 17.7% increase in sales, with one of the largest areas of sales growth being in condominiums.
The month also saw an increase in condo sales of 29% over March 2016 in Toronto and a 13% increase in sales in the surrounding area. Those sales surges have helped average prices for condos rise to $550,299 in Toronto and $440,950 in the surrounding areas. That represents price growth for Toronto condos of 32% in Toronto and 33.2% in the suburbs.
Carlos Moniz, a sales representative at Zoocasa, has been seeing this play out in the market.
“Competition among buyers has increased and the number of offers on condo properties has increased substantially,” he said. “That’s meant the gap in pricing between houses and condos has closed and has left many potential buyers with a tough decision whether to buy or continue renting.”
Why Are These Surges Happening?
The fact that there are more buyers and offers means that more people are looking to get into the market and yet fewer people are actually putting their homes up for sale. That’s put an upwards pressure on prices as people get into bidding wars over properties.
Moniz believes that some of the growth in condo sales is from people who might have been looking for a townhouse or a detached home, but got priced out because they weren’t able to finance the purchase.
“Tighter lending practices has shrunk buyers’ budgets leaving most buyers in a situation where affordability only allows them the option of a condo especially within the city,” he said.
These tighter lending practices mean that those who might have been able to previously afford a condo, might be priced out.
Are Toronto Condos Still Starter Homes?
So, does that mean that Toronto condos are no longer the starter homes that they once were? For some buyers, they aren’t.
“Affordability is making it much more difficult to enter the market,” said Moniz who has seen many recent first-time buyers frustrated in their attempts to buy into the Toronto real estate market.
He’s encouraged them to get on the property ladder in other ways.
“I have told them to consider purchasing an investment property outside the city just to get into the market,” he said. “If location isn’t something that they are willing to give up, they can continue renting in the city while they build equity.”
Is This Sustainable?
With prices rising at such an fast rate, it isn’t surprising that many are wondering if that level of growth is sustainable.
“The price increases year over year are not sustainable long-term,” said Moniz, “however I believe that some government intervention would have to take place to trigger a change in the market.”
That might happen in the future. Many experts are suggesting that the GTA implement measures similar to the B.C. tax on foreign nationals who purchase property in Metro Vancouver. Ontario’s Finance Minister has promised to deliver housing affordability measures in the upcoming budget, set to be released on April 27.
Depending on what measures are introduced, there is some hope that they could affect prices. Multiple metrics have shown that Vancouver home prices have gone down since the foreign buyer tax was implemented in July 2016.
What Should You Do?
While it might make sense to wait until the end of April to see what measures the provincial government plans to implement in regards to housing affordability, timing the market is notoriously difficult, according to Moniz. If you can still afford to get into the market or if you’re willing to buy outside Toronto, then it might make sense to act soon.
“It is a great thing to start paying yourself and to build equity since will always need a place to live,” said Moniz. “Real estate is a long-term investment so if you don’t plan on moving away, whether the market continues to climb or drops in the short-term won’t matter if you don’t plan on selling for five to seven years.”