Toronto condos were the only market segment to avoid a price decline this March. Toronto condo values grew 7.1 per cent this March from 2017, reaching an average price of $590,184, according to the Toronto Real Estate Board. Meanwhile in the 416, detached houses shrunk 17.1 per cent, semi-detached 5 per cent and townhouses 3.5 per cent.
So what makes condos different?
The most important factor is affordability. Most Torontonians can still not afford a detached house, at an average of almost $1.3 million. Even townhouses, the second most affordable market segment, are still selling for about $700,000. Many are fleeing Toronto altogether for a neighbouring city like Hamilton. Homes for sale in Hamilton are far cheaper, with Hamilton houses going for an average of just $550,000.
Condos, in contrast, remain one of the only ways to get on the property ladder for under half a million for those that are determined to stay in the city. That’s for two reasons: Torontonians may simply not want to stretch themselves into being house poor just to have a backyard, and also, the banks are preventing them from even the possibility of that choice.
Last year, banks were able to help with this affordability issue by extending huge loans. Starting January 1 of this year, however, mortgage rules have tightened and banks are more rigorously assessing income. Prospective buyers who seek a mortgage from a federally-regulated lender now must qualify for a mortgage at the five-year benchmark rate published by the Bank of Canada , or at an extra 2 per cent on top of their contract mortgage rate – whichever is higher. The current benchmark rate is 5.14 per cent. Last year, buyers were able to quality for mortgages based on a rate of 2.99 per cent. It doesn’t sound like much, but each quarter a percentage point can have large ramifications.
If we take the price of the average condo with 20 per cent down payment and amortized for 25 years, the difference between those monthly mortgage payments is about $550. Now, that’s not $500 that a borrower would have to pay, but the banks must be able to confidently say that one can afford to.
To subvert these rules, borrowers can choose to take their businesses to a private lender or a credit union, but Canadians are notoriously loyal to their major banks and are unlikely to do so in any great number.
Check out the infographic below to draw your own conclusions:
This post was created in partnership with Zoocasa.com, a leading real estate resource that combines online search tools and a full-service brokerage to empower Canadians to buy or sell their homes faster, easier and more successfully. Home buyers can browse condos, townhouses and houses for sale in Toronto.