Canada's Condominium Magazine
Real estate associations like the Toronto Real Estate Board (TREB) and the Canadian Real Estate Association (CREA) frequently remind buyers and sellers alike that all real estate is local. No matter what you may read about “average” prices in Vancouver or Toronto or Montreal, the price of a home in your town, on your street, will likely be quite different. It’s a simple reality of arithmetic that widely different values among elements skew averages. But a new commentary from CIBC economist Benjamin Tal maintains that what he calls the “multi-dimensional nature” of Canadian housing “goes way beyond geography.”
What he sees is that price increases for more expensive homes are greater than for lower-priced ones. This, he fears, is making it harder for Canadians to move up from their “starter” home to the next level. “Regardless of what your starting point is, and by how much your property has appreciated, the desired move up target is getting further and further out of reach,” writes Tal.
To illustrate, Tal cites statistics showing that the price of homes in the $300,000–$500,000 range increased by about 7 per cent per year over the last four years. Prices of high-end homes ($800,000–$1.2 million), however, increased more than 10 per cent per year, while prices for homes in the next tier ($1.2–$1.6 million) rose more than 12 per cent annually.
It’s a dilemma many home owners have been faced with, at least hypothetically. Yes, the home we own has increased in value by x dollars since we bought it, making us a nice profit, but the home we’d like to move to has increased even more, so we’re really no further ahead: we still can’t afford that other home. Tal puts some numbers to this situation to clarify:
- Home bought for $500,000 in 2010, now worth $640,000
- Gain: $140,000
- Desired “move-up” home worth $800,000 in 2010, now worth $1.12 million
- Gain: over $300,000
In fact, total sales at the lower and mid-price range would have been much more dismal if it were not for the more robust activity in the condo market. This activity is driven largely by investors and first-time homebuyers who see condo ownership as a cheaper alternative to unaffordable low-rise units. That’s a good illustration of the important stabilizing force played by the condo market in recent years.
Benjamin Tal, CIBC
Condos play a stabilizing role
Sales of lower-priced homes, mainly of the single detached variety, have declined since 2010, Tal says. Though “on the surface” the volume of sales across the country appears stable, “it is anything but.” Lower-priced detached home sales fell, mid-priced home sales rose modestly, and high-priced home sales advanced “rapidly” in that period.
The reason for falling sales of lower-priced detached homes? In a word, affordability. “This picture of soft sales at the low-to-mid price range of the single-detached market has affordability written all over it. Tightening mortgage regulations in general, and the reduction in amortizations from 40 years to 25 years for high-ratio mortgages in particular, alongside rising prices worked to price out many first-time homebuyers that dominate activity in this price range.”
That decline in low-to-mid-priced home sales would have been much worse if it had not been for the “robust” activity in the condo market, which has been an important “stabilizing force” on the market in recent years. Tal says that this market is driven largely by investors and first-time buyers in major markets like Toronto and Vancouver, who see condos as a more affordable alternative to single detached homes.
Nevertheless, the all-important first-time homebuyer demographic, the 25–35-year-olds, has lost ground: the ownership rate for this group has dropped from 55 per cent to 50 per cent since 2012.