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To get a clear-eyed view of the GTA real estate market, TD Economics suggests focusing on its disparate parts instead of swallowing the city-wide stats whole.

In their new report, the bank makes the case that there are significant differences between the respective markets in the 416 and 905, supply and demand for detached homes and condo suites and new home and resale markets.

New vs. resale

The report points out that new home sales account for about 25 per cent of all residential real estate transactions in the GTA. This section of the market has seen sales drop by about 30 per cent since hitting their peak in 2011. On the flip side, the resale market appears to be on steadier ground as activity has only seen a three per cent drop off during that same time.

The sales figures are in step with figures detailing the supply and pricing situation. The remaining inventory of new homes for sale has also doubled since 2011 and thanks to the increase in supply, prices have grown by just 2.6 per cent, year-over-year in January 2014. On the other hand, the resale market has seen a more limited amount of homes coming on the market, fueling price increases and tipping the market into seller’s territory.

Condo vs. detached house

As single-family homes remain a hot commodity, detached houses for sale are proving to be super scarce, driving prices higher and higher. Sales are actually falling below historic levels due to the tight market. While 43,000 detached homes were sold in the resale market, only 9,900 were newly constructed in 2013, a significant drop from the 22,000 in 2002. As the price of a single detached family home in the GTA has grown to $718,000, the high is far beyond the grasp of many families earning an average income in Toronto.

For every detached house built in the region, three condos are constructed, a stat that makes TD believe the condo construction boom won’t likely alleviate the current pressure on the housing market.

Resale condos vs. new condos

While TD makes the case that the resale market is balanced with prices growing at a “modest and sustainable rate” and supply keeping up with demand, it doesn’t see the same scenario with new builds. About 70,000 units are expected to be to be completed over 2014 and 2015 — twice the pace of the historical average. A majority of the suites have been sold, but the bank points out that units roughly 9,000 of the units have yet to be absorbed.

Condos are also shrinking in size. The average size peaked at 925 square feet in 2005, while the average size of condos under construction in January 2014 was down to 798 square feet. As investors snap up more of theses smaller suites, the worry is that many will sell upon completion or flee the market in hard economic times. While TD believes that a “good portion” of these investors suites will end up on the market, the banks doesn’t believe it will be to the point of “exerting extreme downward pressure on prices.”

About 26 per cent of condos in the GTA are believed to be used for rental purposes and the average rent for a GTA condo is reportedly $1,700. TD says the cost of carrying an average price condo has been exceeding in the rent that can be earned on it. That, coupled with the uptick in new suites, suggests the “eroding economics of investing in rental properties” will likely to put a significant damper on the region’s condo market.

416 vs. 905 

For now, the rising inventory issue seems to be less of a problem in Toronto’s core. In parts of the city such as North York and the downtown waterfront, sales are mostly keeping pace with inventory. Despite the higher prices, buyers are still tending to choose new homes within Toronto-proper. As of December, sales in areas like North York, mid-town and the downtown core were up significantly compared to the year before, while the 905 measured a sharp decline in condo sales.

The prediction

Taking into consideration the different aspects of the market, TD expects home sales and price growth to cool as rising interest rates “chip away at affordability and demand.” The bank believes that, due to overvaluation, GTA home sales are likely more vulnerable to even smaller upward swings in interest rates than they have been in the past. As demand for condos plateaus and inventory rises, TD expects prices to fall on average by about 4 per cent per year in 2014 and 2015.

The single detached home is expected to fare better, with average price growth continuing to grow, albeit at a more modest rate of two to three per cent.

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