Photo: James Bombales
Condos, for many years a much cheaper alternative to detached homes and townhouses in the expensive Greater Toronto Area, are losing their affordability edge as prices for new units have reached the highest level on record.
At the same time, homebuilders are discounting low-rise dwellings in a climate of fizzling demand after the effects from federal rules, which were introduced last year and make qualifying for a mortgage tougher for many in Canada, take hold.
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The benchmark asking price of a new Toronto area condo hit $796,815 at the end of 2018, an increase of 11 percent from the previous year and a new all-time high, according to the latest figures from Altus Group. The Canadian consultancy collects data on new homes in the country’s major housing markets.
New condo apartments are getting more expensive at a time when single-family home prices are falling, further narrowing the gap. This past December, the benchmark price of single-family home, including detached, linked and semi detached homes as well as townhouses, was $1,143,505, down 7 percent from a year ago and 13 percent off the July 2017 peak.
“While new condominium apartments continue to provide a more affordable alternative to new single-family homes, the gap in prices between new single-family homes and new condominium apartments has narrowed significantly since early 2017, removing some of this advantage,” reads the Altus Group’s GTA Flast Report 2019.
As price trends between the low-rise and higher-density segments diverge, new home sales plummeted to the lowest point since 1996, according to the report. Homebuilders sold 25,161 new homes across the GTA last year, down 40 percent. The 21,330 condo apartments that sold in mid and high-rise buildings, loft structures, and stacked townhomes represent a similar annual drop in activity. Meantime, the decline in the single-family category was even more pronounced. Homebuyers snapped up just 3,831 single-family homes in 2018, a 50-percent drop compared to 2017’s tally.
“More stringent mortgage stress testing delaying purchases, limited availability of single-family product affordable to a broader range of buyers and some condominium apartment demand brought forward into 2017 were key factors behind the decline,” Altus Group says.
New home supply remains tight, but the number of homes available for purchase in homebuilders’ inventories has been rising lately. At the end of December 2018, there were 15,768 new homes available for purchase in the GTA, up from 11,397 exactly one year prior. If the monthly pace of sales that was observed in 2018 persisted without any new homes being released, builders’ inventories would be sold out within six months, Altus Group says. The long-term average is about a year’s supply.
“The inventory of new homes available to purchase has been increasing since the lows recorded in 2017, which is a factor in the slower growth in the benchmark price for new condominium apartments and the decline in the benchmark price for new single-family homes,” notes Altus Group.