November 18, 2019 | condos vs houses
The last few years have been an anomaly in Toronto real estate. They don’t follow the basic rule book of supple and demand economics. Simply put, the value of condos have been rising faster than houses. It’s a head-scratcher. When you consider what supply and demand economics tells us, houses should have higher price gains than condos. In Toronto, there are very few houses added to the supply side of things, but with condos, there is a much larger number of homes added to the housing market every year. So, houses should be worth more since there are far of them in the supply side. But that’s not what’s happening right now. So, the question is: Why not?
One of the reasons houses have had slower price growth compared to condos over the past two years has to do with the fact that houses performed much better than condos for a very long time before the last few years. As demand for housing went up in the past twenty year, so did the price of houses. In fact, it’s gone up so much that many average detached house in the old city of Toronto exceeded a million many years ago.
Houses now cost $1,323,015 (up 0.9% from a year ago). The average condo sells for $603,631 ( up 9.8% from a year ago).
Most buyers do not have the money for a Toronto house. So, they either leave for the suburbs or they buy a Toronto condo. Though the idea of purchasing a property at all in Toronto may be out of reach for some, there is a lot more condos that are in reach than houses. So, you have many more buyers in the condo buyer category over the house buying category. More buyers, means more competition, even though there is more supply. And more competition sends prices up.
In fact, even with condos, the lower you go on price, the higher the price/sq ft. And the more people you will see competing for properties. A condo listed at $1.2 million will have less attention than a condo listed at $499,000 because there are a lot more buyers at $499,000.
Does this mean I think that condos are better investments than houses? Not necessarily. I do believe that it is far more likely in the long term for houses to have greater gains in value over condos, on average. I also believe the time will return where houses will grow in value at a faster rate than condos. Keep in mind that neighbourhood does make a difference. A house in Trinity Bellwoods, as as example, have gone up much more in value over the past two years compared to a house in North York.
Much of the increase in value of a condo or a house has to do with what buyers want. And here’s what we know: Houses may be out of reach for many Torontonians, but survey after survey, tells us that buyer ultimately want a house, particularly Millennials. Boomers want to stay in their houses.
At the end of the day, it really does depend on what condo and what house you are talking about, and what kind of lifestyle you are looking to have. Some houses are better choices than condos, and some condos are better choices than houses. If you look at condos alone, prices have now exceeded $1000/sq ft on average downtown. So, the demand to live there is very strong. Condos that are managed and built/designed well on good transit routes with mixed walkable streets below will often perform better than their generic condo out of the old city of Toronto.
If any thing, you should consider buying a house if you currently own a condo and a house is something you would like and can afford to purchase. The timing would be right. The anomaly won’t stay this way forever. It will eventually drift back to where houses are generally in higher demand.