With mortgage rules becoming tougher and borrowing costs rising, experts predict that Toronto condo prices may go down. A new study by Urbanation says first-time home buyers need a six-figure income to buy a condo in Toronto. The average price of a condo in Toronto was $ 560,000 in the first quarter of 2018, comparing to the last year’s figure – $510,000. Tougher lending standards were introduced in January and a home buyer need an income of at least $100,000 to have a foot in the condo market. Last year only $77,000 was necessary to meet those requirements. Consequently, more people are renting with almost 11% rise of condo rent totaling $2,206 per month. This is by $170 more than the costs of buying your condo.
Housing Supply is Rising
According to federal housing agency, the first quarter started with 7,691 units which is the highest figures since 1990. High-profile developments come online with names like Mizrahi Development’s proposed tower ‘The One’ and Empire Communities Eau de Soleil. The latter’s 63-storey tower will rise 216 meters or 709 feet above Humber Bay. Another development is designed by Frank Gehry including the country’s tallest 92-storey residential tower.
Condos Less Appealing to Investors
The rising supply of condos may make them less appealing to investors. “With the increase in completions that we’re expecting and the slowdown in price appreciation, it may not be as attractive to hold over the longer term,” Shaun Hildebrand at condo data provider Urbanation Inc. said. “In that regard, you can start to see investors selling.”
Condo prices have gone up while mortgage payments, property taxes, and maintenance fees increasingly exceed rental income. While the prices for detached homes are down almost 10 percent from the peak last year, condo prices continue to climb.
The appreciation pace has slowed down, however. The smallest benchmark condo prices were recorded on a year-over-year basis with 8.3 percent increase while sales fell 16 percent from the same month a year before.
Hildebrand at Urbanation predicts for the prices not to drop anytime soon but “investors should be expecting a lower rate of return than they have in the past,” he said.
Developers Scaling Back
At the same time, builders may begin scaling back plans due to a slowdown. “Developers are being careful in introducing new projects as construction costs have been rising quickly, the land is scarce and expensive, development charges are doubling, and there is heightened uncertainty regarding approvals under the new planning regime,” he said. “That will help keep inventory levels in check and price levels steady.”
Developers are offering incentives to boost the sales. “There are cash incentives being offered, discount parking being offered,” said a Resource Realty broker. “We’ve seen a bit more incentives especially in the resale market, we are seeing fewer multiple offers coming in.”
Some developers are also giving buyers longer than the usual six months to come up with a down payment saying it increases the affordability level for people who are saving and paying as they go.
Just a Blip or Something Bigger?
With the slowing demand for condos and the rising supply, condo prices may be on their way down. “We’re seeing an inflection here, and we need to figure out if this is just a blip or something bigger,” Eric Lascelles at RBC Global Asset Management said. Lascelles assigns a 50 percent chance that the market does sideways.