Have you seen Stranger Things on Netflix? Well, if you have, 2017 may very much be the year in Toronto real estate that took place in the upside down. It’s not that we had creepy monsters roaming our streets in 2017, but things were very familiar in some ways, and well very “upside down” in other ways. We had runaway prices in early Spring that we have not seen in years. Price slippage in the summer. And a recovery of sorts in the Fall. Property types that usually perform well in most years were not as impressive, and property types that often finish last were on top. So, where does that leave us now that our upside down year is coming to a close?

Before we look at why we had an upside down year, let’s look at the stats. For Toronto, in November 2017, all properties including both condos and house had an average sale of $802,220. Compared to November 2016 that is up slightly from $790,580. It is down from the peak in April where it hit $942,503, but better than August where it bottomed out at $724,311. Just keep in mind that summer months do tend to be lower in most years, and April tends have the higher prices in many years. Needless to say, we are not currently in a disastrous position. Not as crazy as the peak of Spring, but not as low as the summer.

What is interesting is when you break the stats down by property. Historically, detached houses are king. Very few are built any more in our growing city. It is, without a doubt, a highly desired property type in the city. 2017 has turned the traditional desire for the detached house upside down. This year in November, the average detached house in Toronto sold for $1,276,184. That is down from November 2016 where it averaged $1,395,346. This year detached Toronto houses peaked at $1,580,242 in April and hit it’s lowest point in August at $1,185,164.

Condo apartments were the strongest property type this year, bucking the trend. Condo apartments not only appreciated, but they appreciated in the double digits. They performed better than the often impressive results shown by detached houses, condo townhomes, semis or row houses. In November 2017, the average condo was $555,366. In November 2016 it was $471,875. That’s a 17.69% increase. A very strong year over year gain. Condos did peak in April at $578,871 this year when most of the best condos come for sale. Their lowest point was in July when they averaged $533,369.

So, why did this happen? Why did condo apartments perform better than detached houses? Well a few reasons, but the biggest was the introduction of the foreign buyer tax. The foreign buyer tax was much more influential in the higher end market where much of the foreign buying takes place or is perceived to take place. I’m not sure the foreign buyer tax actually did anything to really discourage foreign buyers, but it did scare all buyers. We also had huge, non-stop price gains for detached homes year after year, that have been incredibly brisk since 2010 . With the exception of 2008, the detached housing market has had steady and substantial increases since the late 90s. Taking a break is not a bad idea.

Condos had a mini-correction around 2010 when there was a fear of overbuilding. Condos have not had the same run-up as houses. This year, we are are seeing a really tight rental market. We are also seeing the government introducing new legislation, yet again, on January 1, 2018 that require all mortgages to be stress tested. With such a test, buyers must qualify for a rate 2% higher than they have been given from the lending institution. This has lead to a mini surge in buyers at the end of this year who would be able to qualify for more mortgage before the stress test takes hold and effectively qualifies them for a smaller mortgage in 2018 with the stress test.

Will this be the new normal? Detached houses taking a back seat to condo apartments? Probably not. Demand has not changed. Detached houses in Toronto are still in limited supply in a growing city. They’re still the most coveted housing type, and that’s not going to change.

Condos in Toronto may not reach the “overbuilt” phase ever again. We will see future condo development but we’re running out of space in the old city of Toronto. There are a lot fewer parking lots to fill up, and huge swaths of centrally-located land, like in Liberty Village or Corktown, are now harder to come by.  There will be more Toronto condos, but they will be tougher to build, and may require more planning and money. Even with the coming legislation that will allow for laneway housing in the city, I don’t think the supply is going to catch up for the demand to live here, whether it is a condo or a detached house.