“A rising tide lifts all boats” may still be an apt description of Canada’s housing market, but right now suburban detached homes are looking like cruise ships while urban condos are looking more like dinghies.
The country’s housing market mounted a robust recovery this summer, with detached homes in suburban areas sailing off the shelves, while urban condos were left to face a raft of challenges in the wake of the pandemic.
As RBC Senior Economist Robert Hogue wrote in a recent research note following another stellar monthly housing data release, the market strength seen over the summer has been largely focused on the single-detached home market.
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“Existing condo supply has surged in Canada’s largest urban areas — in part reflecting concerns about living in smaller, more crowded spaces. The growing penchant for single-detached homes is supporting stronger price increases,” wrote the economist.
Hogue said the bank’s economics team expects single-detached home and condo valuations to continue to diverge in the months ahead. Lower immigration and increased supply in central urban areas were marked as key factors in the condo market’s struggle to gain momentum following the freeze in activity experienced through the spring.
Of course, the condo markets in major Canadian cities aren’t collapsing by any means. As BMO Senior Economist Robert Kavcic pointed out, Toronto condo sales, for example, were up “just” 9.2 percent over the previous year in August.
But when compared to the robust 50.6 percent sales increase seen in the detached home segment in the suburban GTA and City of Toronto during the same period, the condo market’s relatively modest annual increase looks more like a failure to launch.
So while the condo market faces the substantial headwinds of increased supply and immigration declines, it’s also losing ground in the consumer preference battle.
“[P]references have shifted in response to the new normal, leading to a spike in demand for more spacious homes on larger lots, sometimes well outside the core of the major cities,” wrote Kavcic.
“The shift to work-from-home has opened up markets that were never previously in the realm of possibility for those commuting,” he added.
All this has amounted to prices for detached properties in the Toronto region rising nearly 20 percent in August over the previous year, while condo prices rose 9.5 percent. While the price increase disparity in the Vancouver region was less pronounced, detached properties still saw an annual increase that was 2 percentage points higher than what was recorded in the condo segment.
The outlook remains slanted in favour of further price increases in the detached market while condo price increases are likely to continue to be weighed down by unfavourable market dynamics.
“[I]f listings can’t keep up, you can bet that the recent run in prices has more room to go, especially in some smaller markets peripheral to the major cities that are now subject to a feeding frenzy,” wrote BMO’s Kavcic.