If you’ve picked up a newspaper lately you’ve likely read stories about how sales in the market are down. One thing that these articles fail to look at though is the real breakdown of the numbers and how prices are performing in the individual segments. Furthermore, there is one segment that continues to outperform the rest since, condos.
At their peak, condos were up 32.3% year-over-year just four months ago in April. This was just shy of the detached market which was up 32.8% year-over-year in March, which has since dropped to just 8.5% year over year in the latest July numbers. Condos on the other hand have held those price gains, for the most part, and currently are sitting at 24.6% year-over-year just 8.2% shy of Kathleen Wynne’s great announcement.
But why? Why do condos continue to outperform the detached market when everyone used to preach “buy land because they can’t make any more of it”?
5 Reasons Why The Condo Market Is Outperforming The Rest
- Affordability: The average price of a condo in the city is now $532,502, while the average price of a detached house is $1,304,288. I think we can all agree that more people can qualify for a mortgage of $532,502 than can qualify for a mortgage on a $1.3M property. When you consider the mortgage rules are making it tougher for purchasers to qualify for lesser amounts, it only makes more sense why more are looking at cheaper options.
- Immigration: For years Torontonians didn’t understand the idea of condo living, but as more people come to Toronto from all over the world the idea of living in a house doesn’t even make sense to them. If you look at many of the biggest cities around the world, more people are living in Condo buildings than any other type of property. Buying a condo for them just makes sense. Furthermore when you consider that the 2 largest source countries of immigrants to Canada are people from China and India where home ownership rates are 90 and 86.6% respectively (source), it only makes sense that condo buyers will increase.
- Rent Prices Are Out Of Control: When the cost to rent a place is similar to the cost to buy a place, people start to wonder if renting really makes sense. Currently Toronto rents are averaging around $3.25/sqft over the past 2 weeks. It is getting hard to find a studio for less than $1700/mth in the downtown core and the demand is now out of control. Multiple offers for rentals is the new norm and many tenants are even submitting rental applications sight unseen just to give themselves a chance to get into a condo.
- Times Are Changing: People want to live where the action is now, and most people want to live downtown. They like walking to work, having everything at their doorstep and are willing to pay a premium just to have it. More people are raising families in condos now, the amenities are getting better and better and you don’t have to mow a lawn or shovel any snow so making it a relatively maintenance free lifestyle.
- Risk Aversion – The last reason I suspect people are feeling safer with the condo market is because should the market go the other way, 20% of $500,000 is a lot less than 20% of $1.3M. The media have been pumping out the bad press which has led to a lot of people being more worried to purchase a freehold home because if the market did suddenly get worse they stand to risk more money. If I was one of those people and felt that was a possibility I would feel much safer losing $100k vs potentially losing $260k. Frankly, I think we are in for a busy fall market and you can already see prices starting to rebound in the condo market and I suspect the housing market will follow suit but there is definitely some uncertainty in the market now.
In closing, I think condos will continue as a great investment in this city for years to come. Condos are finally becoming more accepted with locals and with the increased immigration they should continue to be in demand for years to come.
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