A leading economists suggests several factors are cushioning the Greater Toronto Area’s condo market from bearing the brunt of Ontario’s Fair Housing Plan, which includes a contentious tax on foreign homebuyers.
BMO Senior Economist Sal Guatieri says a wave of Millennials moving to Toronto to start their careers, international migration and a certain generational shift from standalone houses to condos are “fundamentals” shielding condo prices from the effects of Ontario’s policy move.
“Baby Boomers, they’re cashing in their lottery ticket — their long-held detached property — and downsizing to a condo in the [Toronto] region,” Guatieri, a regular commenter on Canadian housing, tells BuzzBuzzNews.
Then there’s the fact that many buyers have already been priced out of the low-rise market. Condo units are the only housing type within many buyers’ price ranges.
And while the GTA’s condo market isn’t facing the same supply constraints as the low-rise segment, “it’s a bit tight — tighter than normal,” says Guatieri, who notes the new-condo market is picking up, albeit not enough to match price gains on the resale side.
“Two years ago there was a glut of condos in Toronto. That has been fully absorbed,” he continues.
However, all these developments still aren’t enough to justify the annual price growth of 32 per cent observed in the GTA’s resale condo segment this May, the first full month of activity after Ontario introduced the 16-measure Fair Housing Plan.
“You’re getting most likely investment [and] speculation,” says Guatieri explaining the gap between fundamentals and recent price growth that he highlighted in a note titled “Condomanium.”
“Who knows what else is driving the market, but clearly the psychology is such where people expect prices to keep going up, so they’re willing to overpay or overbid for a property, and they’re doing that in the condo market,” he adds.
When does the price boom — one that has lifted the average price of a resale condo in the GTA to $531,659 as of May — end? Does a large enough share of the market have to get priced out altogether?
“Ultimately, it’s the lack of affordability — diminishing affordability — that will put the breaks on the explosion in condo prices in the Toronto region,” he answers.
Guatieri says the Fair Housing Plan has impacted confidence in the market, so buyers and sellers are waiting to see what happens next.
Following the announcement of the non-resident levy of 15 per cent, the average selling price on the resale condo market in May fell about $10,000 from April, while the monthly sales totals only dipped by 159 units over that short period.
Looking ahead, Guatieri expects the condo segment to show considerable strength. “I would think that once buyers and sellers see that the market is not crashing that we’re going to see a return to pretty strong conditions through the summer and the fall, unless interest rates start moving up sooner than we anticipate,” he says.
“[Higher interest rates] will put a break on the housing boom in the Toronto region.”