Where Have All The Condo Buyers Gone?
There’s less interest in Toronto’s glittering skyline these days. The August numbers from RealNet Canada and the Building Industry and Land Development Association show sales demand for high rise condos in the GTA is at a decade low – down 18 per cent year over year and 46 per cent below the 10-year average.
The condo market has long been the go-to for the first time buyer segment in Toronto and Canada’s other urban centres. High rise living has boomed over the past five years as new buyers, fueled by record low mortgage rates, snapped up units in droves. Today’s dropping sales signal a declining ability of young adults to enter the market – they simply can’t afford to buy, even at notoriously cheaper condo prices. So – where have these buyers gone?
1. They’re Living With Their Parents
Despite Finance Minister Jim Flaherty’s best efforts to cool the market, prices remain prohibitively high in the Toronto area, as land supply shrinks. The once-iconic house with picket fence is now but a fantasy; the average price index for a detached home is now $658,938. That’s $222,149 more than that of a condo.
Home prices have risen so fast that they’ve outstripped the rate of inflation, and have made the “great Canadian dream” – graduate from post secondary school, buy a home and start a family – unachievable for many young adults. In fact, 42 per cent of young adults aged 20 – 29 are still living at home with the folks. Dismal unemployment rates for this age group (double that of the national average), steep student debt, and rising rates for mortgages certainly aren’t helping matters.
2. They’re Renting Instead
While sales may be slowing, condo rentals are through the roof in Toronto – Urbanation reports that rented units rose by 20 per cent to 5,315 units in Q2 2013 year over year, with an average rent of $1,847 ($2.35 per square foot). Stated Shaun Hildebrand, senior vice president at Urbanation, “The growth in condo rental activity reflects a greater movement of younger households into the core, and a lack of growth in traditional rental supply.” There’s also a growing trend of condo owners clinging to their equity, renting their condos out rather than sell amid today’s market conditions.
3. They’re Saving For Longer
It hasn’t been an easy few years for the first time buyer segment. Restrictive new rules have placed limitations on mortgage payoff timelines and accessible credit for this group. Most notable are last summer’s OSFI-implemented changes which limited high-ratio home purchases to 25-year amortizations, and effectively pushed many would-be buyers out of the market. Now, determined home buying hopefuls are saving for larger down payments to combat these shorter timelines, as well as the added impact of rising mortgage rates.
4. They’re Moving To The Burbs
Rather than engage in bidding wars for overpriced square footage in the city’s core, many buyers forsake their 416 area code for homes in the 905. It’s no secret you’ll get more bang for your buck outside city limits; according to TREB, the region saw a 3.2 per cent increase in sales to 3,411 units, for an average detached price of $598,708. That’s compared to $866,326 in Toronto. Steep land transfer taxes (Torontonians pay double the tax of other Ontarians), may also push would-be buyers to the fringes.
The promise of space to grow prompted Toronto native Lyndsey McNally and her husband to settle in the town of Ajax. McNally, who is mom to a one-year-old, also commutes to her office in Toronto’s west end, clearing nearly the entire city twice daily.
However, affording a 1,200-square-foot, three-bedroom detached home with generous yard has proven worth it for the young family. “When we decided to take the plunge as first time home buyers, we had to consider the amount of space we wanted to live in,” she says. “We were tired of living in a shoebox, but couldn’t afford the cost of anything larger in Toronto. With family living in the area, moving to Ajax was an obvious choice. Even with commuting costs, we still pay less for our single family home then we did for our tiny apartment.”
She adds that they paid $186,500 at the time for their home (it has since appreciated to $245,000), compared to shelling out $250,000 for 8-900 square feet in the city.
Have you put off your first home purchase due to high market prices? Share your story with us!
Week In Review
Fixed rates were in for another hike this week – the best five-year option has increased by 23 basis points to 3.47 pr cent, while 10-year rates rose by eight basis points. Variable remains stagnant, as the Bank of Canada won’t be changing their overnight lending rate until at least 2014.