Condo prices are experiencing new record highs in Toronto. The average unit in the 416 area code surpassed $740,000 in the last quarter of 2021, showing a considerable improvement from the first quarter of the year and a full recovery from the real estate market’s pandemic cool-off for that segment in 2020.
Last year, first-time homebuyers were deterred from jumping into the housing market by economic uncertainty, which caused that segment to drop 8% to 12% and the inventory to build up. Things started to improve by January 2021, and homebuyers slowly closed deals on condos for sale in Toronto for about $624,000. If we do a fast-forward to the current average price of $740,000, there has been an 18% increase, of about $116,000, throughout 2021.
The rebound has struck heavily with renewed demand, historically low rates still in place, and a significant listing shortage compared to last year. The result is a booming seller’s market with prices above inflation. As the condo market tries to catch up with other property types in the city, many wonder if the cost of condos for sale in Toronto will continue to grow at this rate.
Will Condo Prices Keep On Climbing In Toronto?
There are many reasons to think that condo prices in Toronto will continue to escalate. If single-family homes continue to be out of reach for most first-time homebuyers, the market continues to be under-supplied, and the population in the Greater Toronto Area (GTA) keeps growing exponentially due to immigration, it is fair to project that condominium demand will scale up.
In pre-pandemic years, the average condo price was about $700,000 less than what sellers asked for a common low-rise detached property in Toronto. Today, that difference has climbed to over $1M, a gap of about 30%. Usually, when that happens, one segment subsides, or the other increases prices to narrow the affordability gap in the market. It is more reasonable to expect condo prices to catch up than free-standing property costs to recede $200K.
Are There Other Factors For The Increase In Condo Prices?
Further factors that might influence the increase of condominium prices in Toronto are:
Inventory levels
Toronto’s condo market is currently facing a critically low supply. By October 2020, the city only had about five and a half months of inventory, which means that around 20% of all the condo listings in Toronto could easily be purchased in a single month. For another thing, inventory is not something that can’t magically appear from one day to another. Even when developers are working tirelessly on putting several thousands of units on the Toronto real estate market every year, the supply is still insufficient in meeting the current housing demand.
Some Buyer’s Mindset
Instead of saving up and getting financially ready to buy the property they want, most first-time homebuyers close their lease agreement and jump head-first into the real estate market, looking for whatever they can afford today. That mindset places them far away from the comfortable and spacious low-rise properties they (probably) were dreaming about and closer to whatever is in the budget, the mortgage amount they got approved for. Those homebuyers and many real estate investors typically go for the “cheaper” alternative on the market: a condo.
The Under $1M Alternative
Purchasing a property over $1 million in Toronto calls for a 20% down payment. That means paying $200,000 upfront besides everyth