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Toronto Condo Market Update & Advice For First Time Buyers

Toronto Condo Market Update & Advice For First Time Buyers

Coming off of 2015's record-breaking real estate streak, it's no surprise that both sales and price growth in January were very strong against all property types, in both Toronto and the 905.

Here's a January snapshot from the Toronto Real Estate Board:



No surprise, detached houses continue to see the strongest year-over-year price growth in the GTA as a significant shortage in stock pushes up against increasing demand for family-sized homes.

But what may surprise you - and it's something we touched on in our review of year-end 2015 GTA real estate results - is that the 905 has surpassed Toronto proper in the rate of price growth for every property category save for condos. And one of the big reasons for that is an unbalanced supply and demand situation in and around the core. Detached and semi-detached properties in Toronto have exceeded the budgets of most buyers, particularly young families, creating an increase in demand for homes in suburban areas.

The hot market conditions we've experienced for years in Toronto proper including sellers holding for offers as a matter of course and bidding wars on even the most basic of houses has spilled over into the suburbs. It's not unusual now to see 10, 15 even 20 bidders on a family-sized home in Whitby or Brooklin for example.

So, what impact is this overheated real estate market having on the Toronto condo market specifically?

Toronto Condo Market Off to a Strong Start in 2016

Just as many 905 markets are exploding as more and more buyers are pushed further out into the GTA in order to find the property size and features they want on their budgets, so too has the Toronto condo market boomed as an affordable alternative to freehold housing in and around the core.



The Toronto Star published an article last week about how hot Toronto's east end real estate market is, where properties are selling faster than anywhere else in the city. Yet, the east end is still home to some of the most affordable lofts in Toronto from a cost per square foot perspective and some of our favourite loft buildings. Sales of Toronto condos were up +11.6% in January year-over-year and prices were up a very strong +8.6%. When you bear in mind that a strong annual appreciation rate for condos for sale in Toronto is around +4% to +5% annually, that +8.6% becomes even more staggering.

Again, it's down to two things: the knock on effect of increasingly unaffordable freehold prices and a supply issue with particular types of condos. Even though sales are up, there's a definite listings shortage with larger condos and unique spaces like hard lofts.

Where there is strong supply (for example, with newer, smaller condos), the rise in first time buyers coupled with investors has more than balanced that out. TREB reported that first time buyers made up over have of the GTA real estate market last year - even more for Toronto - and certainly from our own Realtors' experience, we're seeing a major surge in first time condo buyer clients.

So, How's a First Time Buyer Able to Get a Foot on the Property Ladder?

We've been focusing a lot on advice for first time condo buyers lately because, while it's challenging for all buyers in a hot market, it's particularly difficult for first time buyers to get a foot on the property ladder given our current market conditions in Toronto and surrounding areas.

While buying a home when prices are high is not "all relative", buying in a hot market is certainly more relative if you're making a second or third move versus someone who's buying their first property. If you're selling before you buy, you're also reaping the results of an over-heated market (providing you made a smart purchasing decision from the outset and didn't overpay going in).

But if you have no home equity, short of a living inheritance from the bank of mom and dad, many would-be homeowners are stuck renting for much longer than they'd like. Yet, with some of the highest rents in the country and some of the lowest mortgage rates in Canadian history, making the move to home ownership is one of the best ways to build equity and save for your future.

And so, while seeing average condo price growth hit +8.6% last month may be great news for sellers looking to make a move this year (and keep in mind this is just the average - some buildings are enjoying +15% to +20% or higher in annual value appreciation), it's absolutely terrifying news for first time buyers looking to buy their first Toronto condo .



There are some great starter condos in the Distillery District where our offices are based. We work with first time buyers every day and empathize with how difficult it is to save a down payment; most young buyers can't out-save / out-earn the growth in the condo market. And so every year you spend "saving", continuing to rent, you find yourself further behind.

The biggest decision to make is when to buy or if to buy at all, as the case may be. In general, if you have 5% to 10% down payment saved, it's usually better to buy now versus renting and continuing to save because, unless you're ensured a promotion at work or another influx of funds in the near future, you probably can't out-save the condo market. But don't guess at these numbers - sit down with a qualified mortgage broker to crunch the numbers and see which scenario earns you the most money in the long run and is still affordable in terms of monthly payments in the here and now.

We have had potential clients whom we advise not to buy because their financial situation is high risk or they would be leveraged too high monthly. Although we wish this were not the case, not everyone can afford to own a home in this market.

That said, we find that most young professionals earning a decent wage can successfully make the move to condo ownership, providing they're willing to tightly manage their budgets each month and be flexible on neighbourhood and condo size/features. And that's really the second big decision to make after running the numbers and figuring out whether it's better to buy now or continue to save. What do I want versus what do I need to make a smart first step in my real estate journey?

How flexible are you willing to be with the location and features of your first condo? Not everyone is going to be able to afford Queen West or Roncesvalles for example right out of the real estate gate, but Liberty Village may be great alternative.

We want you to love your first condo, of course, but remember, this is your first home and not your forever home. Stay flexible and open minded and you can soon be building your home equity, bringing you one step closer towards your dream property. For most young professionals, the large spaces and unique character features will come in time but you have to be willing to take that first step with a more modest property or you'll continue to fall further behind in this market.



Liberty Village condos offer some of the best cost per square foot prices in the city with really decent buildings and living spaces, for the most part. There are definitely some buildings in LV that we would recommend over others, so speak with one of our Liberty Village Condo PROs if you're thinking of buying here. If you're a first time buyer deciding when and what to buy, have a read of our previous posts on:

Tips for First Time Buyers - our top tips for the first time condo buyer

The First Time Buyer Catch 22 - do you prioritize investment over affordability?

New Down Payment Rules - Canada's new down payment legislation that will effect you if you're buying over the $500k mark

High Ratio Mortgages - if you have less than 20% saved, is a high ratio mortgage right for you?

Buy vs Rent - should you really buy a condo or continue to rent?

Lead image: The Merchandise Lofts pictured in our top image is one of our favourite buildings for first time buyers. With such a variety of unit sizes, there are starter options available and new listings come up quite frequently here. And the location, amenities and condo culture are all awesome, providing a great lifestyle for young professionals.