Condo prices could see a big surge in value this year as low-rise homes become even more financially prohibitive and housing demand continues outpacing supply.
Online brokerage Zoocasa says the spread between high- and low-rise housing is the second largest it has ever been. Comparing both segments’ prices in Toronto between 2011 and 2021, condos cost half of what detached houses did. According to the report, the ratio has increased from 1.99 to 2.33 and hasn’t been this high since the B-20 mortgage stress test was introduced in January 2017, months before Ontario introduced a foreign buyer levy of 15%, to subdue the rising rate of price appreciation for GTA houses.
“Usually, when we see detached price gains slow, condos will grow. Heading into the new year, major bodies like the Toronto Regional Real Estate Board are expecting price appreciation to moderate from the record pace we saw in 2021, and rising interest rates will only make the most affordable homes on the market more attractive. I’m anticipating that we’re going to see a big year for condos in the region,” Zoocasa realtor Ross Aitken said.
“In the first month of 2022 alone, the average price for a condo in the region grew $36,000. The market is moving quickly, in no small part due to buyers being optimistic and excited for a return to enjoy an urban lifestyle after nearly two years of recurring lockdowns.”
Higher Mortgage Rates to Fuel Demand for Cheapest Home Types
Zoocasa has GTA-based detached homes averaging $1,741,318 and condos at $748,566, which it speculates is partly the result of the province-wide race for space in the COVID-19 era. Moreover, while condos’ appreciation decelerated through 2020, that changed by January 2021 when condos sales rose by 90% year over year during the first two weeks of the month.
With the spread this wide, there’s strong reason to anticipate more growth in the GTA’s condo market. For starters, the Bank of Canada is widely believed to hike its overnight interest rate in March as the first of six increases over the next 18 months, which will remove more buyers from the single-family detached market, as happened in 2018 when rates last rose, and also when prices were lower. When interest rates last rose, home sales across all product types in the GTA slowed down before growing for condo townhouses and apartments by 9% and 10%, respectively, while detached home prices only appreciated by 4%. Similarly, Zoocasa believes condos will lead growth in all housing segments in 2022.
Read: Take a (Rate) Hike: Optimism in Canada's Housing Market Hits All-Time High
“Taking cues from 2018, when interest rates rose last, we can predict that the most affordable price points in the market, like condos and townhomes, will lead growth in 2022 as a result of higher borrowing costs,” Zoocasa CEO Lauren Haw said.
Life to Return to Urban Cores
The rescission of pandemic restrictions will also make urban living more appealing. Just as when Toronto saw an exodus during the early months of the COVID-19-induced lockdown, the opposite occurring is a reasonable expectation. As a matter of fact, numerous provinces have already scrapped some restrictions, with Ontario announcing Monday it is following suit. Moreover, excessive rental demand has already returned to the city, a sign that the ownership market is taking off, as well, as downtown Toronto resumes its status as arguably the top destination in Ontario to live, work and play.
So far this year, the housing market across all product types has been fierce, Aitken says.
“What today’s buyer needs to know is that success really starts with due diligence. Properties are moving quickly in this market, if you’re serious you need to be able to compete. This means having your mortgage pre-approval completed and your lawyer ready to review the status certificate.”
