Living the downtown condo lifestyle stopped being cool in mid-March, 2020.
That’s when the economy was put into a COVID-fighting lockdown and lot of us started working from home. The housing market hasn’t been the same since then. People want spacious houses with yards much more than urban condos.
And so, downtown condo prices in expensive cities such as Toronto are soft while the cost of houses both in and out of the city are soaring. Ready for a little contrarian thinking about where the best value in real estate can be found?
“There’s that classic quote from Warren Buffett – be fearful when others are greedy and greedy when others are fearful,” said John Pasalis, president of Realosophy Realty, a real estate brokerage that specializes in data analysis. “But when you’re greedy, you have to know how to look for value.”
Two groups stand out in the search for value in condo-land – young adults and downsizing baby boomers. There’s no slam dunk argument for either group, but the overall state of the condo market is still favourable in comparison with a year ago from a pricing point of view.
A recent report by Mr. Pasalis’s firm noted a sudden surge in condo demand in downtown Toronto in the final three months of 2019 and early 2020. Over six months, average prices jumped by $100,000 to $820,000. Since then, average downtown prices have fallen back to just under $750,000.
Average prices were still ahead of where they were 12 months ago, but the trend for condo sales and prices seems to be downward. Sales of condos in Toronto’s urban 416 area code fell 8.5 per cent on a year-over-year basis in October, the only segment of the real estate market in the city and in the suburbs to post a decline.
The number of condos listed for sale has jumped not only in Toronto, but also Montreal and Vancouver. Disruption caused by the pandemic has reduced demand for rental units, sending rents lower and persuading some condo landlords to sell. “Tight downtown condo markets that previously commanded expensive rents are now thick with supply,” a recent RBC Economics report says.
The hardest-hit part of the market is micro-condos, which are generally smaller than 500 square feet. Larger condos, those around 1,200 square feet or more, are holding their value much better.
The appeal of micro-condos is affordability. In Vancouver’s Kitsilano area, there was a 538-square-foot one-bedroom downtown condo listed on Realtor.ca recently for $475,000. More than 150 small downtown Toronto one-bedroom, one-bathroom condos were listed for $350,000 to $500,000. Property taxes for these units are low – roughly $1,500 to $1,700 a year– and monthly maintenance fees were similarly low at $300 to $400.
Condos like these are tolerable as a place to sleep and chill after a day at the office, but confining if you have to work at home. Still, they offer young adults a rare opportunity to get into the real estate market at marked-down prices.
Mr. Pasalis says that anyone buying a small condo now should plan to stay for at least five years because further price declines are possible before a recovery. “As long as people are working from home, small condos are not going to come back,” he said. “The second office towers open up and people are going to work again, then there’s going to be demand again.”
Bigger condos haven’t dipped much in price, but the market is less hectic than it was nine months ago. “Buyers aren’t paying astronomical prices and they’re not competing with 10 other people,” Mr. Pasalis said.
One example of finding value in larger condos today: Mr. Pasalis said a client of his firm recently bought a two-bedroom Toronto condo for the same price as the owner paid in 2018.
His advice for anyone eyeing a downtown condo is to find a building where the units are occupied by their owners rather than renters because of the perception renters may not be as invested in keeping a unit in top shape. He said tall downtown condos in Toronto often have a big rental presence.
One more piece of advice is to find an experienced agent who is willing to offer sellers less than they’re asking. “When you’re looking for value, you’re basically paying a fair bit less than what the seller is asking,” he said. “My experience in Toronto is that a lot of agents have only known an up market and many of them are reluctant to offer less.”
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