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Toronto Condo Market Update: May 2016 Results

Toronto Condo Market Update: May 2016 Results

May was another hot month for condos for sale in Toronto with price increases exceeding traditional, annual appreciation rates. It's the 905 market that's the race winner though when it comes to value appreciation trends. While sales prices are obviously below that of Toronto proper, condos and houses in the 905 are outpacing Toronto homes in terms of average year-over-year price growth.

Growth in the condo market has moderated since the craziness we saw in February and March but listings are getting more constrained in the face of increasing demand and prices continue to rise. In other words, that slight moderation in year-over-year price growth doesn't mean condos are getting cheaper with the average Toronto condo sale price nearing $443k. Prices continue to rise each month and May was no exception.

Let's take a look at the Toronto Real Estate Board's (TREB) latest figures.

Toronto Condo Market Continues to Soar Through Month of May but it's the 905 Market That's Growing at a Mind-Blowing Pace

Despite setting a new record for the month of May with the number of home sales - a total of 12,870 across the GTA - this is still a seller's market with supply continuing to fall short of demand. A growing population, low mortgage rates and skyrocketing rents continue to fuel growth in the number of buyers actively looking for properties, particularly first-time buyers looking to get on the first rung of the property ladder.

This massive growth in first time buyers (a recent study by Ipsos for TREB suggested that over half of GTA home purchases this year would be by first time buyers) coupled with listings constraints in the freehold market are creating the conditions for bidding wars and rising values for GTA condos.

The Toronto condo market is starting to mirror the freehold market in many ways including listings shortages in high-demand neighbourhoods, popular buildings and certain sizes/layouts (such as family-sized, 3 bedroom condos) that has had this domino effect leading to bidding wars and a shorter average days on market.

That said, the year-over-year sales prices in Toronto condos for sale, +5% in May, has moderated from the massive +17.8% spike we saw in February. But price growth continues to track above historic rates and so if you're waiting for a deal, you're working against the realities of the market.

The situation is even more extreme with 905 condos - and, in fact, every type of property in the 905 including townhomes, semi-detached and detached houses. Condos in the 905 are outpacing Toronto's price growth, illustrating the sprawl effect of rising home prices over the last few years. Detached homes in the 905 increased in price the most in May; a massive surge of +21.2% on average. And so even those buyers looking to make the move to the suburbs to get more bang for their buck are facing the likelihood of bidding wars.

Listings Shortage is Still the Biggest Issue

Those 12,870 homes sold in May across the GTA represented a +10.6% increase in sales over the same period last year. However, new listings were actually down over May of last year by -6.4%. This decline in new listings isn't exclusive to freehold housing - there was a decline in condominium listings as well.

In addition, more and more new buyers are trying to enter the market and so you have this situation where the number of buyers continues to rise quite dramatically while new listings are declining. Homes are selling faster, staying on the market for just an average of 15 days in May, and are much more likely to go to multiple bids.

Mark McLean, President of TREB, says:

"Whether we’re talking about existing homeowners or people looking to purchase for the first time, there is no shortage of buyers in the marketplace today. So, while the record number of home sales through the first five months of 2016 is not necessarily surprising, it does sometimes mask the larger story in the GTA: the shortage of listings, which has resulted in strong upward pressure on home prices."

While the shortage of listings in the GTA real estate market is challenging for all buyers, there's no doubt that first time buyers are struggling the most.

The biggest hurdle for first time buyers is saving money (and saving enough money to outpace market growth) while the cost of living continues to surge above average annual salary increases. For some, cutting down on expenses is the only option which may mean living in a smaller Toronto condo rental longer or living with roommates and doing away with existing debt such as car loan payments.

Millennials have a long road ahead of them to make their property dreams a reality but if they manage to save an adequate down payment, they'll also enjoy a much faster growth in equity than previous generations and historically low mortgage rates to boot.

The short of it is, Toronto-area real estate continues to be one of the best investments you can make (annual price growth continues to beat out inflation across every property type) but the longer you wait, the harder it's going to get to break into the market and the more equity growth potential you lose out on.

If you're thinking of buying a condo in the next few years and you haven't created a financial plan, start crunching those numbers.

Photos featured throughout are of our latest listing at The Hemingway in Forest Hill, named after literary giant and former resident Ernest Hemingway. 3+1 bed, 2 bath, parking. See listing for Unit 12 .