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A home for sale on Claremont St. in Toronto is pictured on May 11, 2017.

Fred Lum/The Globe and Mail

Aspiring real estate buyers in the 416 area code who want to move up to a detached house from a condo unit may be tempted to do that soon if they take a look at the shrinking price gap between the two.

Scott Ingram, a real estate agent with Century 21 Regal Realty Inc., has been keeping an eye on the spread. His number-crunching shows that, on average, a buyer of a detached house in the 416 would have paid about $727,000 more in September than the buyer of a condo apartment.

That marks the narrowest gap for a September since 2015.

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It’s also a dramatic narrowing from the widest gulf in February, 2017, when a buyer would have had to shell out an average of $1.061-million more to get into a detached.

Mr. Ingram drilled down further to compare the average monthly gap for previous years. In 2016, it was $798,000 and in 2017, $843,000.

In 2018, the average monthly difference for the first nine months was $738,000.

Mr. Ingram points out that, for many years, the growth in detached house prices far outpaced that of condos. The momentum shifted when many buyers were priced out of richly valued detached houses and began to look to condo apartments instead.

In the past couple of years, condo prices have been on a tear while detached house prices have stagnated.

In September, the average condo price in the core jumped 11.7 per cent compared with the same month last year. The average price of a detached house in the same period slipped 1.4 per cent.

While Mr. Ingram thinks the shrinking gap could encourage buyers to move up now, he also points out that it may become smaller still.

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“There may be more gap shrinking to come.”

He adds that a shrinking gap doesn’t really help people who are buying a detached house as a first-time purchase. It’s mostly of interest to people moving up from condos.

The interesting twist there, in his opinion, is that many condo owners choose to hang on to their units even when they move up to a house.

Mr. Ingram cautions that owners who hold onto their condo in order to rent it out are not necessarily adopting the smartest long-term strategy.

He points to the example of a young couple who own a condo and now want to purchase a house for $700,000 or less.

“That’s really tight,” says Mr. Ingram, who adds that the couple is being forced to look farther afield in order to find a house in their price range.

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“Why compromise on your living situation?”

By selling the condo and putting the equity toward their house budget, they might land a more appealing property in a desirable neighbourhood.

Their investment in real estate would remain at about $1-million, but it would be concentrated in one property instead of divided into two.

Looking at price appreciation over the long-term, detached houses have tended to be a better investment than condos, he says.

“Long-term, I think that will continue to be the case in this city,” he says.

And while condo towers are still rising at a fast clip, the stock of detached houses in the city is mostly stable.

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“Condos are still being built. I think that bodes well for long-term price growth in houses.”

Mr. Ingram knows that some buyers figure the income from renting out the condo will cover the expense of owning it. But in recent years, condo prices have risen so dramatically that many owners are not able to reap enough in rent to cover the mortgage payments and maintenance fees.

Meanwhile, a detached house may have a basement apartment or nanny’s suite that can be used for rental income.

Mr. Ingram says some of the young clients he works with prefer to own a bungalow and have a tenant in the basement.

There are lots of factors that go into making a decision, Mr. Ingram says, and he urges young buyers to weigh all of them to figure out the strategy that best suits their buying power and lifestyle.

Phil Soper, chief executive officer of Royal LePage, believes the Canadian real estate market will be strengthened by “a massive cohort of millennials moving into the age of home buying”.

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Mr. Soper says Royal LePage research shows that 87 per cent of respondents to a survey said they would like to own a home.

Big city markets such as Vancouver, Toronto and Calgary have struggled, he says, but he believes 2019 will be more robust.

“It’s essentially recovery mode in 2018.”

More stringent regulations surrounding mortgage borrowing introduced at the start of the year hampered some potential buyers, he says.

But he believes the correction that followed a high-octane run-up in prices is mostly in the past.

“It did it’s job – it triggered a correction,” he says of the mortgage “stress test”. We believe that we achieved a soft landing and the market is now recovering.”

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In addition to the millennials, new Canadians are also forming households, he says. Baby boomers, meanwhile, want to move into condos.

“All of this says to me there is going to be more pressure on available housing.”

Some market watchers believe Canada’s housing market will continue to struggle against the spectre of higher interest rates. The tougher mortgage rules will become even more onerous if rates continue to rise, some industry insiders warn.

At Bank of Montreal, strategist Benjamin Reitzes says he will be watching to see how “gradual” the Bank of Canada is likely to be with future interest rate hikes.

The newly minted trade agreement between Canada, the United States and Mexico will take away some of the uncertainty hanging over the Canadian economy, Mr. Reitzes says, but adds that highly indebted households could arguably be the most prominent reason for a gradual pace.

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