GTA Q3 Condominium Report; Prices Rises Amid Declining Supply
According to the most recent TREB Q3 Condominium Report, 8,014 apartment sales were recorded, a 22.1% increase year over year. During the same time frame, new listings for condominium apartments within the Greater Toronto Area (GTA) declined 13.3%, putting upward pressure on condominium prices.
There’s a shortage of units in Toronto, regardless of the fact that it has the most condominiums under construction in North America. In the past few years, the shortage of listings was an issue within the low rise, single family sector, due to land constraints (limited room left to build low rise homes due to the Greenbelt Act, which protects over 1.8 million acres of land from the urban sprawl).
The supply side issues are becoming more prevalent within the recent condominium reports. A large part of the demand for condos comes from many buyers who are out priced of the low rise, single family homes. In Toronto, an average home buyer would need to save 10% of their pretax income for a little more than 6 years, in order to afford a downpayment on a low rise property (Globe and Mail). As a result, condos are increasingly becoming the more affordable option for first time home buyers.
“While the low-rise market has been top-of-mind in the supply discussion, it is very important to note that supply pressures have also been experienced in the condominium apartment market segment over the past year. The completion of new units was down substantially during the first three quarters of 2016 compared to the same period in 2015. This arguably played a role in the decline in new condominium apartment listings on TREB’s MLS® System” – Larry Cerqua, Toronto Real Estate Board (TREB) President
Given the demand-supply imbalance, the average condominium apartment in Q3 2016 was $415,643 – an increase of 9.6% from Q3 2016. This is significantly lower than the price growth of low rise homes, which have been experiencing price increases north of 20%.
In attempt to cool down the housing market, Ottawa increased the minimum downpayment requirement to 10%, for the purchase price between $500,000 – $1,000,000 (an increase from 5%). Although this change was implemented in the beginning of 2016, there seems to be no impact on the condo market, as prices continued to grow, quarter over quarter.
The fact that the average GTA condo is below $500,000 is one factor that can explain why this new mortgage rule did not slow down the condo markets. When Ottawa implemented the new rules, the downpayment requirement for homes below $500,000 remained unchanged at 5%.
Recently, Finance Minister, Bill Monreau implemented new mortgage rules, limiting the amount an individual can borrow, with a 5% downpayment. This new rule can reduce the purchasing power of a homebuyer by around 20%, potentially out pricing many first time homebuyers, according to the Canadian Real Estate Association (CREA). Condo prices are partially driven by the shortage of condos. As of now, the impact on this new rule is uncertain. Many policymakers are waiting it out, to see whether or not this new mortgage rule will have a significant impact on the real estate industry, within Toronto and Canada.
The demand for Toronto Real Estate continues to outstrip the supply, explaining the price growth in the past couple of years. Other factors, such as low interest rates, high immigration rates, and strong labor market also play a role in the strong real estate industry. With low-rise homes being out of reach for the average first time homebuyer, condos are increasingly becoming a popular option.
Writer: Jelani Smith
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