Resale prices in July increased by 2.1 per cent, keeping the last 12 months increase at 28%. However, the price increase was exclusively in condo segment, while single dwellings went down by 1.6% comparing to June.
I can say with confidence that almost all increase in condos was driven by units under $700,000 exclusively in Toronto, excluding the rest of GTA, where price levels were visibly lagging.
First-time buyers, mostly investors, were looking to get a foot in the door and used the May-June weakness to load on investment. They were sitting on sidelines, consumed by fear of getting permanently outpriced, so many took the plunge seeing the summer market weakness as an opportunity. Units below $500000 were selling really fast, reflecting the best price - to – rent value.
Obviously, the rising cost of homeownership is pushing more people to rent, and the vacancy rate in Toronto has tightened over the past few years to 1.3 per cent, according to CMHC. Rentals are really hot this summer, and one bedroom, 500 sq. condo rentals start from $1,700. If you put 20% down, it’s possible to achieve a break-even, or even positive(!) cash flow.
Most likely the trend will continue, and in spite of 17 per cent increase in rental prices, they will go much higher. Toronto will continue to grow, with more and more people moving to the city looking for housing. This, in turn, indicates further increase in condo prices, and rent control won’t prevent it. Most renters in downtown Toronto are younger people, with dynamic lifestyle, moving around the city. When a tenant moves, a landlord can adjust the rent accordingly, and well few years in advance.
Comparing to detached homes rentals, for students and young professionals condo living offers so much more than home in subs – style, convenience, swimming pool and gym, security and opportunity to socialize. The size of the unit doesn’t matter that much. For example, I find it much more challenging to rent a townhouse in Toronto core, large and suitable for a family than a condo in high rise tower, half the size but quite similar in rental price. It seems like not many young adults are looking to start a family, and according to latest census figures, half of them live with their parents, planning to move out eventually.
Toronto was once the place where young families want to start a life, but that’s no longer the case. Changing pattern of household formation will support demand for condo rentals, and condo prices most likely will continue to come up.
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