Home buyers in the Toronto region are starting to shift their focus to low-rise housing options as condominium prices continue their march higher, shrinking the price gap compared with other types of properties.
Condos were the strongest housing category in Toronto in 2017 and 2018 as first-time buyers in particular favoured the region’s most affordable housing option. But condo prices have climbed far faster than other housing categories – especially detached houses – making more buyers question whether they still represent the best value for the money.
As of July, for example, the average townhouse in the Greater Toronto Area cost $660,251, or 13 per cent more than the average condominium at $584,019. It is the lowest percentage price gap between the two housing types since July, 2012, and a major drop from July, 2016, when the average townhouse was 32 per cent more expensive than the average condo.
The average semi-detached house cost 35 per cent more than an average condo in July, down from a price gap of 64 per cent in 2016. Detached houses were 70 per cent more expensive than the average condo last month, a ratio that has fallen from 134 per cent in 2016.
Real estate agent John Pasalis, president of Realosophy Realty Inc. in Toronto’s eastern Leslieville neighbourhood, said he is seeing more buyers looking at semi-detached houses as an alternative to condominiums as the price gap has shrunk. But in most cases, he said it typically means they are shopping for smaller semis in a lower price range.
“We certainly are starting to see people come into the office who are trying to decide between the two, especially if their budget is in the range of $800,000 to $900,000,” he said. “Certainly people who don’t really need or want to be a five-minute walk from their downtown office are starting to lean more toward houses.”
In the first seven months of 2019, the number of detached and semi-detached houses sold in the GTA both climbed by almost 19 per cent, while townhouse sales rose 14 per cent. Condos, however, posted slower growth this year, with the number of sales climbing just 0.9 per cent, according to Toronto Real Estate Board data.
Real estate agents say the steady decline in detached house prices in the GTA should also push more buyers to consider reaching for a detached house rather than a semi-detached, but the trend has been slow to emerge.
Detached house prices fell 1 per cent in July to an average of $995,043. So far in 2019, detached home prices have been lower each month except May compared with the same month last year.
In July, the average detached house in the GTA sold for $995,043, about 26 per cent more than the average semi-detached house at $786,974. The price gap has shrunk from 43 per cent in 2016.
The market would likely adjust more quickly to pricing changes if not for the mortgage stress test introduced in January, 2018, Mr. Pasalis said. The tougher mortgage rules have made it harder for some buyers to stretch up to a higher price category, even if the price difference is shrinking.
Real estate agent Scott Ingram of Century 21 Regal Realty Inc. in Toronto also says he believes more people would be considering a low-rise property over a condo if there were more townhouses in the centre of Toronto. In July, for example, buyers in the city of Toronto bought 1,617 condos and just 328 townhouses, because of limited inventory.
Buyers who want a townhouse may have to move to more suburban areas within the GTA, he said, which adds commuting considerations to to the decision.
“I think people will definitely reach if they can,” Mr. Ingram said. “People definitely like the extra space, and having outdoor space is big for most people, too.”
However, real estate agent Erica Smith of Stomp Realty Inc., who is part of The Condo Chicks sales group, said she is not seeing a change in buyers’ preferences for condos.
“Millennials want a turnkey lifestyle. They prefer to live in a 500-square-foot condo in the centre of downtown where they can walk to work, walk to a bar, walk to the gym,” she said.
Ms. Smith said she also believes the average sales prices give a misleading impression of the price difference between condos and townhouses. She said average townhouse prices are skewed by a large number of cheaper lower-level stacked townhouses. Those units are often small and below ground level.
“It’s pretty much comparable to a basement apartment, say at $600,000,” she said. “And then you can get a bright one-bedroom condo on the 10th or 11th floor. People are going to gravitate towards that all day long.”