This is shaping up as the year the Greater Toronto Area's new-homes market went topsy-turvy.
For the past half decade there has been a slow but steady march toward high-rise condominiums taking over the lion's share of the market. They climbed from about 40 per cent of new-home sales at the start of the decade to about 60 per cent 18 months ago. So far this year, that trend has done a complete flip-flop.
September figures are in, and RealNet Canada Inc. says low-rise sales totalled 13,137 by the end of September, compared with 8,620 condo suites. The spread would have been greater had condos not staged a remarkable comeback in September, posting 1,926 sales and making September the best month for high-rise builders in a year. By comparison, low-rise posted 1,955 homes sold in September, which is about par for the course.
"This summer [was]the best season we have ever had," says Patrick O'Hanlon, president of Kylemore Communities, which will build about 300 detached, semi-detached and townhouse homes at six projects in Markham, Aurora and Newcastle this year.
"I think the demand is going to continue right through spring," he says. "Then I expect to hit a brick wall in July when the new harmonized sales tax comes in. What happens after that is anyone's guess."
At the same time, prices for low-rise homes have steadily zipped up and up while condo prices have gone down this year. Mind you, there are some important factors at play here: Smaller sizes and cheaper finishes have played a major role in the condo price decline.
The only market segment that high-rise builders could rely on this year was first-time buyers, and their limited budgets would not allow big suites or "grace notes" such as granite counter tops or stainless-steel appliances.
The rising price of detached homes is more worrisome. By the end of this summer, the average price for a new detached home had shot up to $450,402 from $321,942 five years earlier, RealNet says. So far this year, prices have jumped every quarter - with little end in sight - says RealNet president George Carras.
"I was just talking with one builder and he says he raised prices three times this summer alone," Mr. Carras says. "His main complaint is he can't keep prices in line with demand."
So what has happened to turn the new-homes market on its head?
The experts say 100,000 immigrants to the GTA each year create the need for 40,000 new housing units of all kinds every 12 months. In the past, that translated to 20,000 to 24,000 condos and 16,000 to 20,000 low-rise homes.
When credit markets collapsed last year, high-rise builders could not find financing, so almost no new projects were launched. Almost half the supply equation disappeared overnight.
Low-rise builders need far less financing, and some - like Kylemore - even went ahead and built on spec all through the late fall and early spring so they would have inventory on hand when things eased up.
Demand for housing continued to build, however. When consumer confidence started to return this spring, people started thinking about new homes. The resale market boomed, and as people found they could get a reasonable price for their homes they started to think about moving.
The only options were low-rise new homes or resale. Then, the supply of resale condos and houses started to dry up. New homes became the only game in town.
At the same time, low-rise builders are battling a shortage of serviced land. The GTA has no room to expand. The provincially mandated greenbelt and restrictions designed to protect the Oak Ridges moraine have slipped a noose around housing supply.
Now, down to prices of both new and resale detached homes: There are two factors at play. The first is the supply-and-demand equation. The second, however, is the more ephemeral quality-of-life issue.
Homes on small lots with little to offer except shelter and maybe a nearby park will tick up in value with simple demand. Those that sit on large lots in communities with lots of green space and are adjacent to a major lifestyle draw, such as a golf course, start out more expensive and can be expected to rise in value more quickly and further.
That, at least, is Mr. O'Hanlon's view. His Markham and Aurora projects border on golf courses; Newcastle sits beside Lake Ontario.
"We also build into the communities 15 per cent to 20 per cent more parkland and a third more trees," he says.
"The end result is that our homes, especially the high-end homes, have risen in value more quickly than in other projects. A house we sold for $600,000 four years ago now sells for $800,000."
Draw whatever lessons you want from all this, but what I see happening does not bode well for the future of affordable single-family homes.