Condos Gone Wild – Toronto & GTA Condominium Sales Heat Up in October
With the new mortgage rules which effectively knock down the price of entry to the real estate market for first home buyers or home buyers on a limited budget, it isn’t surprising that condominiums saw the highest growth rates of any property type in October.
The Toronto Real Estate Board’s October Market Watch was full of more of the same, with 11.5% growth in year-over-year number of transactions across Toronto and the GTA. The only difference was that this growth was mostly fueled by condo sales.
Condo sales in GTA are exploding
The number of condominium sales in the Greater Toronto Area increased by 28.3% year over year, while Toronto condos clocked in at a 19.8% increase. This can be explained in a very simple way – if you are priced out of the detached or semi-detached home market, you are likely going to purchase a condominium in Toronto if you can afford it, and in the GTA if you can’t. The average price for a Toronto condo is $100,000 more than the average price of a condo in the GTA – a significant and palpable difference to a first-time or tight budget buyer. At an average price of around $359,000, a GTA condo is the last bastion of affordability in the area market for a buyer with a single income.
Rates of price growth skyrocketing due to lack of supply
Despite the explosion of condo sales, if we go by the rate of price growth, detached homes are still the most desirable commodity in the local real estate market. Condos only went up by 12.5% in October, while detached homes went up by 25.8%.
Jason Mercer, Director of Market Analysis for TREB, explained the phenomenon. “Until we experience sustained relief in the supply of listings, the potential for strong annual rates of price growth will persist, especially in the low-rise market segments.”
Detached homes are bound to face a continued lack of supply because it is more profitable for a builder to build a condominium building than a detached or semi-detached home in the current hot market, especially where land is at a premium in Toronto.
Is the foreign buyer tax in Vancouver driving sales in Toronto?
Although the TREB had promised a review of this to come later in 2016, we haven’t seen it yet. It will be up to the TREB to determine if correlation is the same as causation in the matter of Vancouver home prices plunging while Toronto home prices increased in October, although it’s hard to imagine that the Vancouver foreign buyer tax is having no impact at all given the sharp contrasts between the increases and decreases – Vancouver’s overall home sales slid by 38.8% in October. This could also be a result of the new mortgage rules making new properties in Vancouver officially unaffordable to those with an average middle-class income, especially since prices in Vancouver are higher across all property types.
How the new mortgage rules factor in
Realistically, the new mortgage rules only affect first time homebuyers or buyers on a limited budget, as stated above. While they were touted as a means to cool the hot housing market – which they may have done in Vancouver – in Toronto they seem to be driving these buyers into condominiums. Those at the upper end of the market who can afford a detached or semi-detached home in the area will be largely unaffected by these mortgage rules, and this could be why home prices continue to appreciate in the detached and semi-detached categories at a high rate.