Toronto’s Condo Market Has Changed A Lot in Two Years
Toronto condos make up over 50% of residential resale sales and are quickly becoming the go to option for Buyers looking in this city. They showed strong resilience last year while the rest of the market dropped, and their strength in regards to price growth has continued into 2018. The average purchase price for a condo in the City of Toronto crossed the $600,000 threshold last month, up10% from the start of 2018.
It’s pretty incredible to think that just two years ago the majority (61%) of condos in the Greater Toronto Area were selling for below $400,000 and 23% were selling for less than $300,000. Currently just 24% of condos sell below $400,000, a meager 4% sell for under $300,000, approximately half of the condos bought last month cost more than $500,000.
The large jump in prices in the condo market could be one of the main reasons sales hit a 15 year low in the month of April. With the median household income in Toronto coming in around $80,000/year and new stress test rules, Buyers once able to look to condos for an affordable purchase seem to have little to choose from now.
Price increases for condos on both a month/month and year/year basis have finally begun to flatten this year. Year over year appreciation went from 15% in January to 3% in April. There are reasons to continue to anticipate further price appreciation this year given current supply levels and a tight rental market. However, investors have become more hesitant to leverage themselves as interest rates continue to climb. Parents who have been investing with their kids have likely also become more hesitant, given their home values have been negatively impacted for the first time in a long time. April statistics show the average home across the GTA dropped 12% from this time last year, the third month in a row of double digit depreciation.
If investors are taking a pause, that means the market is relying more on end users, and affordability will be an ongoing talking point for some time in this city.
April Highlights
Sales in April were low. There were just 7,800 sales in April, even those slow down years in 2008 (8,800) and 2009 (8,100) had more April sales. The last times sales were below 8,000 units was 2003.
The squeeze continues….Sales were down in all segments and product types in April, but it’s worth noting that sales for $1M+ were seeing sales decline in the 40-50% range while most lower price points were seeing sales drop 20-30%.
Historically Sellers have been pretty resilient avoiding listing when the market has cooled. It might be why new listings dropped 25% from last April. The 16,000 new listings we did see is a fairly typical range for April. The low demand has caused the Months of Inventory (MOI) in the GTA to tick up from an ultra low level of 1 in May 2017 to 2.2 in April 2018. This is still a relatively low number for months of inventory and Buyers will still see stiff competition in many areas across the GTA. York Region continues to be the exception as MOI jumped to 4.1 months in April as Buyers seem to feel that area may have been overvalued in recent years.
What to look for going forward:
While I’m expecting demand to increase at some point this year, if it doesn’t happen soon we should see more favorable Buying conditions round out the spring and into the summer months as the number of active listings and MOI increases.
With just over 10% of condos selling for over $800,000 in April, you can expect this number to start to push higher given the current level of demand and lack of listings. This is particularly true for larger units close to downtown.
Larger condos and condo towns in affordable price points often found in suburban areas, will continue to be in high demand. Under current supply levels, Buyers with tight budgets will be forced outside the core as prices appreciate beyond affordability.
Buyer’s market will continue in higher price points as demand has continued to drop. What is considered a higher price point will be area dependent.
Toronto condo Buyers should proceed cautiously; this market segment is still showing strong price growth. However, many home Buyers from this time last year can attest to how excessive exuberance followed by a jump in inventory, leads to negative equity situations.
