TD Bank economists Derek Burleton and Diana Petramala said people's obsession with house prices in the Toronto area has obscured the differences between various subsections of the market: the 905 area versus the 416; detached houses versus condos; and new builds versus existing homes.
"One market is facing too much supply, while another appears to be heating up," the bank said. "The GTA housing market is a tale of several markets with divergent conditions."
If there's a public perception that Toronto's real estate market is red-hot and has been for a while, there's little doubt that's being driven by what's happening with single-family detached homes.
To put it simply, they're hot.
Across the GTA as a whole, prices for single-family homes increased by 12 per cent in the year that ended in January. That's much stronger than the gains seen in all other categories of real estate. But it may be a surprise to note that the volume of sales are well below historical norms.
The bank points out that there were 43,000 detached homes sold in the resale market across the GTA in 2013. On top of that there were 9,900 new builds. That compares with 22,000 new builds in 2002. Price increases in the category are in a large part being driven by lack of supply.
"Scarcity has been a major issue in this pocket of the marketplace," the bank said.
New homes effectively aren't being built in downtown Toronto, driving up the price for the ones that already exist. For every detached house that gets built, there are three new condos built, the bank says.
A city of condos
Despite the lack of new single-family homes, more than 70 per cent of new home sales in the GTA as a whole are happening in Toronto proper. The seeming discrepancy within that suggests that what is being built, more often than not, is a condo.
Indeed, so many new condos are being built that the sale prices are being cannibalized by those that came before. The average price of a new condo is $545,000, TD Bank said. But prices for existing condos are much lower — $347,000, on average. Older condos are also generally larger — the average unit size in 2005 was 925 square feet, but had shrunk to 798 square feet in January.
With 70,000 new units expected to come online this year and next (twice the historic average) that's a gap the bank doesn't expect to close any time soon.
"The new condo market is increasingly finding it more difficult to compete with condos on the resale market, which are both large and cheaper," TD said.
And the buildings are getting a lot taller. Development rules have resulted in more builders producing condos instead of single-family homes and within that, "condo development in the GTA has focused on high-rise projects where the economics of construction have been more favourable," the bank said.
In the year 2000, only about 28 per cent of condos were being built in high-rise towers. Today that ratio has jumped to 60 per cent.
"Higher land, construction and regulatory costs have made it more difficult for newer buildings to compete with older buildings," the bank said.
Rental market concerns
The bank also sounds a modest alarm about the market for investors who rent out their units. Recent estimates are that 26 per cent of the condos in Toronto aren't owner-occupied, but rather are rented out — at an average cost of $1,700 a month, the report said.
Investors face more of a risk to flip and sell their units upon completion, and are less likely to ride out a cold market if prices decline.
"It is likely that a good portion of these rented units will ultimately end up on the market," the bank said. First-time condo sellers getting less than they'd hoped for is also likely to have an impact when they try to move up to the single-family home market, TD notes.
A peek into the attic of housing in the GTA shows a complex market moving in many different directions.
"Markets that have a higher concentration of single-detached and low-rise condominiums — including many regions in the 905 areas code — are expected to outperform relative to those with a higher concentration [of] high-rise condominiums."Suggest a correction