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:
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 everything else you have to pay before closing the deal and with a mortgage in place. That is not a manageable amount to gather, at least not with a 9 to 5 office job in a not exactly cheap city. Seeing their homeownership affordability dramatically reduced by current market price points, about 70% of homebuyers in the GTA closed condo transactions for under $1M in the last quarter of the year.
The Trend Of Smaller Living Spaces
Condominiums are also in high demand among the youngest first-time homebuyers less concerned about having space. For this demographic, location is more important than square footage, making smaller and even micro units increasingly popular, especially if they are situated close to workplaces, schools, or social spots and venues. But a tiny condo doesn’t mean a cheaper condo; it is the opposite. Condos in Toronto are dwindling in size but growing in price per square foot. The median price per sqft for a condo in 2019 was $743, leaping to $900 in 2021. There are zones where the standard price climbs to $1000.
What Would 2022 Look Like For Condo Buyers?
After a brief languishing period, the condo market regained traction and now shares some of the broader Toronto real estate market features. If the market continues to have a high demand fuelled by immigration, mortgage rates experience an increment, and property supply keeps as tight as it is today, condo prices will most likely keep soaring as we approach 2022. Steady growth in housing supply and a more diversified inventory might help ease the current red-hot conditions of the condo market.