In the condo world, 2017 was a big year. Some are actually calling it the year of the condo. And they’re right. Condo prices jumped twenty-two percent year over year. Which means that a condo today in the 6ix will set you back $524,437… Still by far the most affordable real estate option available in Toronto.
Those who’ve already invested in condos are looking like straight-up Warren Buffett-level geniuses right now. So congrats to you, you got a little something extra for Christmas this year.
End-of-year lists can come off as a bit of a cliché—but they’re also extremely important. Especially when we’re talking about the shifting landscape of Toronto’s real estate market. They organize and categorize information that can be messy. And hindsight being what it is, lists like these provide us with some objectivity. And objectivity = clarity—not just today, but for 2018, too.
So, let’s take a look at the 2017 trends that shaped the condo market for a better understanding of things to come in 2018.
1. Regulatory Overkill
Some big regulations were announced or implemented over the course of the year. Specifically, I’m talking about Ontario’s so-called Fair Housing Plan, and OSFI’s new B-20 guidelines, i.e the “stress test”. Though the new mortgage rules don’t officially come into play until January 1st, they’ve already made a big impact.
The Fair Housing Plan aimed to cool the province’s overheated housing market by imposing a foreign buyers’ and vacancy tax to stifle foreign investment. Interestingly, a recent joint study by Statistics Canada and the Canada Mortgage and Housing Corporation shows that non-residents own less than 5% of housing in Toronto. Which means foreign investment hasn’t been the main factor in driving home prices in the city.
That said, the Toronto market has cooled off. A bit. Prices have dropped and we’ve seen an increase in detached stock. Except for last month. It’s worth noting that national home sales in November broke records. Likely, this is just buyers trying to get into the market before the new mortgage rules kick in.
While these regulations have influenced other segments, not so much condos. At least, not yet. One unintended consequence of the Fair Housing Plan is that its rent control provision continues to discourage developers from building rentals. So far, we’ve seen 1,000 planned rental units evaporate into thin air, putting more pressure on condo investors to fill the city’s rental demand.
For 2018, it’ll be interesting to see how the new mortgage rules influence first-time homebuyers who don’t qualify for a loan. Will they go the condo route? Hard to say now, but definitely something to watch out for.
2. Supply and the Rental Market
Supply has been an important topic in 2017, and it’s easy to see why. For one, we had one of the hottest autumn launching seasons in the city’s history. A drop in the ocean, really, if we look at the contribution it’ll make to Toronto’s overall housing supply.
With a vacancy rate of 1%, a sixteen-year low, Toronto is desperate for more rentals. Even more shocking is the fact that only 5% of Toronto’s purpose-built rentals were built in the last thirty-seven years…
Supply is a huge issue and it will remain one in 2018. And beyond.
For condo investors, the city’s vacancy rate has driven rents up to all-time highs, which isn’t great if you’re leasing out a unit. The reality: investor-owned condos simply can’t close the city’s gap between rental supply and demand. To fill the gap, purpose-built rental construction needs to at least double.
We need to be building more. A lot more.
3. Springsanity and Home Prices
Spring 2017 was, for lack of a better word, insane. It was springsane. Over January alone, the average price for a Toronto home climbed from $770,745 to $875,983. That’s a 12% increase. In one month. And that trend continued well into April. At one point, detached homes climbed well above one million dollars.
Understandably, many people were priced out of traditional markets. That’s where condos came in. Both pre-construction and resale. Beyond offering affordability to first-time buyers and investors, condos have proven that they retain value. And, in fact, of the 5,377 new homes sold in October, 4,893 of them were condos.
Thus 2017 being the year of the condo.
People are always asking me if I think 2018 will be another big year for condos. In terms of prices, it would be totally unrealistic to expect another twenty-two percent jump. That said, there’s still room for growth. Condos are a central part of Toronto living.
One last thing: Toronto is a global city. I know, I know—us Torontonians say this all the time. We hear it on the news, too. The thing is, a lot of us aren’t ready to accept what this means, exactly. New York. London. Hong Kong. Tokyo. These are all global cities, too. Expensive cities. Vertical, high-density cities. And that’s the direction we’re heading in.
For example, as of late August, the average price per square foot of a condo in Manhattan was $1,773. For downtown Toronto, it’s $929. Admittedly, downtown Toronto isn’t Manhattan. But we are growing, and as we do, home prices will continue to increase. And that’s something that will continue to make headlines in 2018.