Condos seemed to be a doomed investment as recently as last year. But a recent report from real estate firm Royal LePage found that the median price per square foot of GTA condos actually rose this year to $743 – a jump of 9.1 per cent thanks to an increased trend towards baby boomers downsizing.
However, the new availability of single-family homes holds little appeal for the millennial cohort, as exorbitant pricing keeps them locked out of the market. This is despite the fact that, according to Ratehub.ca, Canadian mortgage rates have fallen to their lowest levels within the past two years!
This has led both millennials and baby boomers competing for the same type of housing – condos. And it’s this type of competition that has led to a heated market. “You’ve got demand and affordability driving it,” Royal LePage CEO Phil Soper told Toronto Star. Still, as Urban Toronto reported, GTA condo construction reached an all-time high in the first quarter of 2019. And 3,073 new condo units were sold across the GTA within the same quarter.
Meanwhile, millennials face even more constraints in the real estate market. The “stress test,” also known as the B20 regulation, established by the Superintendent of Financial Institutions introduced new mortgage rules in 2018 that required uninsured mortgage borrowers to lay down a 20 per cent down payment. Still, Soper says the regulation hasn’t dampened the demand.
“People are adjusting to it,” Soper told the Toronto Star. “It’s taken 15 to 18 months to work its way through the system. We thought it would take nine to 12. But people have saved up for down payments.”
“A lot of millennials are saying ‘I guess I can’t get a single-family home. I’ll buy a smaller condo,’” explained John Andrew, a Queen’s University real estate professor. He notes another factor driving up demand is the shrinking size of Toronto condos – even in comparison to Vancouver, a city renowned for its minuscule units.
Better Dwelling reported that the median size condo built between 2016 and 2017 fell to 647 sq. ft. – down five per cent from those built between 2011 and 2015. That’s even 39.53 per cent smaller than the condos that were made in 1990, when space was at a premium. In Vancouver, the median size fell to just 769 sq. ft. between 2016 and 2017. And it’s amazing what that extra hundred feet can feel like,
especially when it comes to storing your stuff.
Will the tiny houses trend pour over into the condo market as well? Beware the micro-condo trend! Ironically, as the condos get smaller, the price per square foot increases – simply because of the premium put on space. “There’s an economy of scale within condos,” Andrew told the Toronto Star. “So it really stands to reason that as condo sizes shrink, the average price per square foot is going up.”
While new actions from the Canadian federal and provincial governments, such as the Foreign Buyer’s Tax, caused a big drop in real estate purchases, and the 2018 mortgage stress test slowed purchases across the country, GTA condos continue to be the exception to the rule.
Unbelievably, Vancouver condo prices actually fell for the first time in years. At an 8.3 per cent drop – to approximately $764 per square foot – the Toronto Star reported that it was the biggest drop in a major market in Canada.
Don’t breathe any sigh of relief just yet though. That one bedroom Vancouver shoebox – er, condo – will still cost you well over half a million.