Detached home sales in Toronto continue to steal headlines with record-shattering prices, but what does it mean for the GTA condo market?
The Greater Toronto Area condo market has never shown as much all-around strength as it has so far in 2016. Urbanation’s first-quarter results revealed a 33-per-cent year-over-year surge in new condo apartment sales while resale activity grew 21 per cent and condo lease transactions shot up by 25 per cent. Even more impressive was that this growth came from already lofty levels in early 2015, elevating new condo sales to just shy of a record, with new highs reached for both resale and condo rental volumes. By all recent accounts, this momentum has carried through to the second quarter.
In looking into the details of the data and speaking with market representatives, it has been interesting to note how the composition of demand has evolved during the latest upturn. Certainly the continuation of ultra-low mortgage rates, gains in local employment, and strong population growth within the 25 to 34-year-old age group have provided structural support for more first-time buyers. However, there is also mounting evidence that move-up buyers are playing a larger role in the condo market than ever before.
With average resale prices for detached homes climbing to $1.3 million in May 2016 in the City of Toronto, and semi-detached homes offering little relief at an average of $835,000, an increasing share of buyers are turning to condos as an alternative. Indeed, condo sales have represented roughly half of all resales in the 416 region this year, with year-to-date growth strongest within the upper range of units, priced from $500,000 to $1 million, at 57 per cent — almost triple the rate for the condo market as a whole.
The new condo market, which has traditionally been driven by investor sales at pre-construction, has witnessed a jump in activity across projects that are well under way in construction or have recently reached completion, where remaining inventory is typically composed of larger suites. In fact, demand has been so strong at the latter stages of development that 92 per cent of the 20,000-plus units under construction and within one year of completion were pre-sold.
Even the rental market is experiencing rising demand from higher-income renters that could afford to buy a home, but haven’t been able to find one due to high price points and low availabilities. It’s telling that the share of condos leased in the first quarter for more than $2,000 a month jumped to 30 per cent from 20 per cent a year ago while the number of leases for more than $3,000 a month nearly doubled.
The market implications of this maturation of demand has been a tightening of supply and an acceleration in condo values. The sales-to-listings ratio for resale condos has entered seller’s market territory for the first time since 2011, with per-square-foot prices rising eight per cent annually and condo rents up seven per cent year-over-year in the first quarter — even with a record supply of new units hitting the rental market. While new condo price growth has remained relatively flat at three per cent, prices are rising quickly for unsold units under construction (up seven per cent) and available supply has fallen to its lowest level in five years.
Looking back at the record levels of construction in recent years in Toronto, few expected the market to become under-supplied in 2016. Actually most were calling for quite the opposite. But then again, the runaway prices and severe lack of availability in the low-rise market has also come as a bit of surprise, which can now be considered an important factor for the high-rise market.
Shaun Hildebrand is senior vice president at Urbanation.