On July 28, BMO experts and Tridel teamed up for a conference call discussing the current real estate climate in the GTA. The focus was on the condo market in particular – how various factors have influenced buyers to opt for a condo rather than a traditional starter home. Participants in this discussion included Robert Kavcec (Senior Economist, BMO Capital Markets), Fausto Bonomo, (Regional Director, BMO Bank of Montreal), and Jim Ritchie (Senior VP Sales & Marketing, Tridel). Below is a point-form overview of the panel discussion:
HOUSING MARKET OVERVIEW (Robert Kavcec)
-The housing market in Toronto is as strong as anywhere in Canada, with the exception of Vancouver as far as price growth goes. Looking at metrics like sales or the month supply out in the market right now, things look pretty balanced.
-Despite being relatively balanced, there will be a modest downside going into 2012. Sales are expected to decline 3 percent next year and average prices will be down about 2 percent. There are several reasons for this, one being stricter mortgage rules having a marginal impact on affordability. There is no longer the option of purchasing homes with 35-40 year amortizations.
- One thing we’ve been looking has been prices relative to the median incomes in Canada, and we’re pretty well near record levels by that measure. I think Toronto specifically, average house prices are almost seven times the median family income. Now, that’s elevated relative to say, two or three years ago, before we went into recession. We were down at about 4.5 times median income, and Toronto has also created more expenses in Canada as a whole. Canada as a whole, we’re seeing prices about five times median income.
So now granted, some of that is justifiable given the low level of mortgage rates right now, but even when you account for that factor, it still looks like prices are a little bit stretched relative to income, then it’s probably one of the bigger reasons why we’re not expecting too much as far as house price growth goes over the next few years.
CONDO MARKET (Jim Ritchie)
-The condo industry has produced an average of 15,000 condo units each year, and this will be the 11th year at that number. This means that the market is consistent, with the marketplace absorbing that amount of condos for the past 11 years.
-While the city of Toronto continues to dominate in terms of actual unit sales, market share in the 905 region is increasing. In June, we saw 2,868 high-rise condo sales in the GTA, of which 63 percent were in the city of Toronto and the balance 37 percent outside in the 905. If you compare that to the first quarter of this year, the Toronto share was about 79 percent. This is a trend heavily influenced by price differential – obviously housing is more expensive in the core of the city. You can buy more suite for the money in the 905 region.
-That being said, the largest sub-markets continue to be in Toronto. Downtown West has always been number one. North York City Centre is up there in the top three or four. Waterfront Toronto is also an extremely popular sub-market. Downtown Toronto is the preferred location for first-time buyers and investors.
- In the past five years, the average price of a new condo has risen from about $350,000, to today where the average price is very close to $460,000. But obviously, we’ve had pressure from construction prices, land, increased levies, taxes such as the increased number on the HST. So, to manage this end price, the average size of the unit has been getting smaller, and is going to continue to go in that direction. So, it’s pretty typical to see today in the marketplace, for the mainstream market, one bedrooms that range in the 500 to 550 square foot range, one and dens that are in 600 and a very popular two-bedroom today is only 750 square feet. So, we can do this by really combining spaces. So, the living room, the dining room and the kitchen really all morph into one space. So, by utilizing linear kitchens, by going to European sized appliances, by increasing the vision glass in the primary space, making sure that there’s common flooring throughout the unit and using higher ceilings. You know, today nine foot really is the norm. Not too much in the marketplace with eight. So by doing all of that, I think we can accomplish very liveable space, but very efficient and smaller that was in the marketplace before.
-Today at least a third of our buyers are not putting in land lines in terms of phones. This is a growing trend bound to continue. As a result, we’ve had to introduce building cell repeaters in the core of the buildings and into the garage to accommodate that.
We are delivering a building in downtown Toronto, on Front Street West called Rêve, and it’ll be the first one that we have where you will be able to get complete cell service.
-The most popular type of unit continues to be the one-bedroom and den. About 40-42 percent of all suites sold are in that category. That was certainly the case in June, followed by one-bedrooms at about 24 percent. Two bedrooms make up 21 percent; 2 plus den are 11 percent; and whatever is left, which is not much, any other kind of category in terms of larger sizes or penthouses. The market works on affordability.
CONDO DEMOGRAPHICS (Jim Ritchie)
-Based on numbers at Tridel (that can be attributed to the last 10,000 sales), the average age of a purchaser in the GTA is 42. If we look at first-time buyers, the number is closer to the low 30s. I would say 33 would be a good number for first-time buyers.
-Almost half of end users are first-time buyers. Many account for single-person households, and a third of all our purchasers (not just first-timers) are single female.
-To summarize, about half of the market segment are first-time buyers. Another 25 percent are the traditional empty nesters who’ve moved out of their homes. The newest segment that continues to grow is the move-up buyer from an existing condo, accounting for another 25 percent of the market. These are people who’ve bought condos but are looking to move up from one size or change location.
BUDGETING (Fausto Bonomo)
-From a financial standpoint, condos are more affordable than single-family homes. There’s a larger variety of condo sizes that meet individual budgets and pricing thresholds. A big advantage for condos is that it usually takes longer to build, giving the purchaser more time to save money while the building is under construction. It gives individuals the opportunity to really budget themselves properly.
-From a budgeting standpoint, we advise our customers to start with a financial plan, start looking at a pre-approved mortgage, and to understand the fees associated with that. The planning should start at least a year prior to buying a condo, so buyers are able to shop around and understand their financial standing.
-As Jim mentioned before, affordability and lifestyle are the two main factors for buying a condo. Based on a recent survey that BMO had concluded, we saw that 46 percent of all Canadians who are planning to buy a condo will do so in the means of—to getting into the housing market.
-The one advantage that we’ve seen recently in the GTA over the last few years is that with purchasing a condo, a new condo unit, we’ve seen yearly price increases per square foot, which has translated into instant equity for our clients that have purchased the condo early on. This usually gives them an opportunity to build some equity, and obviously upgrade in the future to a larger unit and/or a single-family home down the road, depending on what their affordability and/or life stage or lifestyle factors are.
- We advise our clients to remember is when looking at a condo unit, a parking spot is usually a great idea. Although it could be expensive, it certainly adds to the resale value of that condo.
*Source: Statistics compiled from the official transcript of the BMO/Tridel panel discussion