The Gap Between The Price of A Toronto Condo and A Detached Is Closing Fast

The Gap Between The Price of A Toronto Condo and A Detached Is Closing Fast

Toronto real estate prices have been diverging recently. Toronto Real Estate Board (TREB) numbers show that detached prices are falling, while condos are at an all-time high. This has pushed many people to ask, how expensive can a condo get – relative to detached prices. Condo prices are getting closer to detached homes, but currently the gap isn’t unusual compared to historic trends.

Toronto Condo Prices Increased Over 41%

Toronto condo prices are rising less quickly than they were last year, but are still making a huge jump higher. TREB reported a condo benchmark price of $469,800, a 0.34% increase from the month before. The annual increase works out to 19.88% higher than the year before. That’s in addition to the 17.94% increase the year before that. Yes, that means condo prices have increased 41.37% over the past years. A surreal amount, that even the CMHC has expressed concerns about.

Source: CREA, Better Dwelling.

Toronto Detached Prices Increased Over 25%

Detached homes haven’t been quite as lucky. The benchmark price of detached home in Toronto is now $853,500, down 0.28% from the month before. That works out to an increase of  0.6% over the past twelve months. Don’t worry, they increased by 24.41% the year before that. The total increase over the past two years adds up to a massive 25.16%. While that a huge jump, it’s still substantially lower from the rise we’ve seen in condos.

The Gap Is Closing Quickly

The gap between a condo and a detached is narrowing. As of January, a benchmark condo costs 55.04% of a benchmark detached. This is a huge climb from last January, when it was just 46.19% the price of detached. The current ratio is the highest its been since May 2013. However, it’s not the highest it’s ever been – and is actually wider than it the median historic trend.

Source: CREA, Better Dwelling.

Condo prices are fairly low when compared to detached prices. The median ratio of a condo to a detached since 2005, has been 56.80%. The highest it’s ever been was 61.36%, which it reached in May 2009. Currently we’re 3.19% below that median, and 11.48% below the highest we’ve seen. In terms of relative value to a detached, a condo is far from the worst the worst value we’ve seen.

Now, don’t read this information the wrong way, this doesn’t mean that condos are undervalued. Nor does it mean that detached homes are overvalued. The ratio can move in various directions, either higher or lower. This depends entirely on how fundamental price increases are moving. What we’re learning here is the relative value is no more unusual than it has ever been. Until recently, the gap was unusually large.

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  • Reply
    Trevor 6 years ago

    Once the price of a condo hits that mean line, the detached market is probably going to recover. This happened in Vancouver just a few months ago, now all of their markets are back to pushing new highs.

    • Reply
      bluetheimpala 6 years ago

      Thanks Trevor. Very sound advise. Please ensure you tell EVERYONE you know to keep buying real estate, particularly foreigners or new immigrants. EVERYONE!

    • Reply
      vnm 6 years ago

      Detached has reached the end of the cartoon plank, and is just waiting for Condo to catch up so it has a hand to hold onto when it takes the plunge.

  • Reply
    Trader Jim 6 years ago

    The price increase chart should give condo owners some insight as to what’s going to happen to prices soon. It looks like the condo market historically lags by 6 months, give or take.

    • Reply
      vnm 6 years ago

      Economists say were in a Goldilocks moment, not too hot, not too cold, but a tepid just about right. But I think they have their fairy tales mixed up, and least in Toronto. It’s a Cinderella illusion – and the clock is ticking.

      • Reply
        Johnny 6 years ago

        It’s a bit ridiculous when anyone uses the “goldilocks” moment anywhere when describing Toronto real estate for past 15 years. It’s been red hot. Even when prices are only going up 5%, they were doing it off the backs of huge previous increases. The rest of the world considers Toronto to be the most bubbliest real estate globally.

  • Reply
    Tat 6 years ago

    What I see is you got a huge deal on a condo if you bought from 2014 to 2017. The market is distorted because of the inflationary pay everyone is receiving. Just 20 years ago, $40k was a good salary, for a house that was just under half the price they are now. Now an $90k salary is expected for a house about twice the price.

    The problem is with governments increasing minimum wage, rather than cracking down on opportunity gaps. Increasing minimum wages just drives the whole economy to spend more in an inflationary manner. Most people are too stupid to realize that if you get a 20% raise, and everything starts costing 20% more, you really didn’t get a raise.

    • Reply
      Andrew 6 years ago

      What a desperately scraped together narrative.

      • Reply
        vnm 6 years ago

        Thank you. Posts like that leads one to think there is no hope for humanity, your wit and composure is appreciated.

    • Reply
      Ham 6 years ago

      You should take a look at price to median income ratio and you will realize your narrative falls apart.

    • Reply
      CNL 6 years ago

      Being in the workforce myself working full-time for over a decade, and having been talking to others who have been working for a long time, none of us could believe that the raise of our salary, can even catch up with the change of the rising property price. And thinking about the inflation, from 2014 to 2017, the change is only about 5.06% (…when CPI is considered…). But how about the increase of the amount of the property price in the past few years? In short, I find this statement – “…The [property] market is distorted because of the inflationary pay everyone is receiving….” – very questionable.

      On top of this, many working poor who are earning minimum wage in Toronto are having a hard time to find any place to call their homes. I don’t believe that the raise of their minimum wage can really address their housing issue. Yet, it is better than not raising at all.

      If most of our economy is driven by those who are making minimum wage, then, I will agree that the change of their ‘minimum’ could have a significant impact on us. Yet in this case, shouldn’t we consider the improvement of their quality of life in order to make their contribution to our economy more sustainable? […how can people keep working in a place in which they are having a hard time to find a home…] If they are only a small portion of our economy, then I am not certain whether their ‘minimum’ change will have any significant impact on us as a whole, let alone the price of the property which is likely out of their reach since … how long ago?

  • Reply
    vnm 6 years ago

    And other even stupider people don’t realize that if the cost of housing suddenly doubles anyone who doesn’t already own just got their paycheques cut in half.
    And the absolute stupidest people don’t think they have to care about anyone else.

  • Reply
    Al Daimee 6 years ago

    There are a good number of those who have owned a condo for the past few years or more in Toronto who may be setting their sights on the house market now that this price gap has shrunk. The profile of such owners would have had rising income and a healthy equity/capital appreciation build-up to be able to put down a good-sized downpayment and afford to move into the house market.

    For example, an 800sq.ft. 2 bedroom condo with parking and locker in downtown Toronto would currently sell for an average of $770K. Three years ago, that same condo would have been an average of $600K. Assuming the buyer had 10% + CMHC insurance in initial downpayment and paid 2.79% interest for a 5yr fixed for the past 3 years, their mortgage balance would be $493,150 with monthly mortgage payments of $2,498. After selling costs, their net equity would be $725K-$493K = $232K.

    A likely price point for the move-up would be around $1MM. This means a mortgage of $800K, since 20% downpayment is necessary. The balance of the $32K would go toward paying the land transfer taxes of almost $40K plus approximately $4K in legal fees and hiring movers. We can expect a couple of full-time professionals with no children (the likely profile for this scenario) to be able to put away $12K of savings over 3 years who are earning a combined after tax income of over $9K/month (each person earning $70K, which is quite attainable for downtown Toronto professionals) to cover the remaining costs.

    Assuming the balance of their initial mortgage can be ported over and the top-up mortgage of $307K is at 3.34% (a typical 5yr fixed rate today), their monthly payments for the next 2 years are now $2,498 + $1,507 = $4,005. In 2 years, the lower rate mortgage will be renewed at a rate of 4.5% (assuming BoC rates increasing 4-5 more times over 2 years). The new payment will now be $2,544 + $1,507 = $4,051. Their incomes will likely continue to grow, making their housing expenses easier to cover and the ability to afford to start a family or save for the future.

    I deal with mostly singles and couples who are working professionals, many of which are earning well over $140K in household income. The above scenario is not unrealistic and I truly believe that a rise in detached prices is forseeable in the near future as more condo owners move into freehold housing as the primary housing type for raising children. I can tell you from being active with buyers that there is a lack of QUALITY inventory, despite the rise in actual inventory, and the competition is fierce right now in the freehold housing market for these better homes in nearly all price ranges.

    The perception that the recent rise in interest rates is going to have a negative effect on housing is unwarranted, if you consider the scenario I have shown above where existing mortgages can be ported over to offset the current rates. It will take at least a few more years before the market is negatively impacted by rising rates (and that is assuming incomes don’t rise) and I do not see the BoC jacking up rates too aggressively since they are being cautious in avoiding a recession.

    • Reply
      Grizzly Gus 6 years ago

      I am no mortgage broker but a $4000 a month mortgage on a 9k combine after tax income = 44% of after tax income going to housing. Is that ok? Time will tell. They will also be stress tested at 2% higher, which I assume will have their payments above 50%.

      • Reply
        Bodge 6 years ago

        Agreed, the rise from a ~$2500 mortgage payment on a condo to ~$4000 on a detached home is a significant drain on disposable income. A young family putting themselves in this position will have to trade off other expenses such as child care, automobiles, travel and retirement savings to live house rich. I’m not sure it’s a great lifestyle alternative that will fuel demand for 1MM detached homes.
        In addition, we will likely start hearing stories of folks who purchased a detached home over the past year, and are now seeing comparables being sold for 10% less. There goes half your downpayment. This will have a psychological effect on potential buyers.
        Further, the stress test will lower their buying propensity by about 20%, so I have doubts a couple with 20% down on 1M will be able to borrow an additional 800K – assuming no mortgage port, or other credit lines currently in use that also pull down their borrowing propensity.

        • Reply
          Al Daimee 6 years ago

          @ Grizzly Gus
          The stress test doesn’t mean they pay more for their mortgage, it just checks to see if they qualify with a rate 2% higher. I am hearing from Millennial clients that they are paying about 50% of their gross income on housing, which is possible by forgoing owning/leasing a car, which typically isn’t needed if you are living close to work already. Short-term car rentals, like Autoshare, has filled that void and makes much more sense financially.

          @ Bodge:
          It comes down to personal goals, budgeting and lifestyle adjustments in the short-term to achieve home ownership. Travel can be domestic instead of abroad. Cut the $4 coffees and make your own coffee. Seek cheaper dining out options (great cheap eats are plentiful in Toronto) or cook more at home.
          If you have around $4K of disposable income (I am taking $1000 away for other housing related expenses) to live off of, you should be able to manage this with fiscal responsibility. Keep in mind that $70K/yr income for a young professional is quite attainable and I have often seen much higher incomes above $100K from one or both earners. Incomes will rise, giving room to expand your family or lifestyle or introduce new goals.
          As far as any price corrections are concerned over the past year, this is a short-term adjustment and housing is meant to be a longer-term hold. If there is no need to sell, then there is no reason to panic. Long term historical average is ~6-6.5% growth per annum since the 80s. Even if you bought at the peak of 1990 and held to today, you are still ahead after adjusting for inflation. If you have to sell in a “down” market, it’s unfortunate, but the same thing can happen with your RRPSs, stocks, etc. My personal investment portfolio has been far outshadowed by real estate over the past 10 years, making me regret even bothering with RRSPs and stock investments, however, I remain diversified because we are taught to think this way.

          • Joe 6 years ago

            A lot of these new condos have steep home owner association fees as well. With a pricey mortgage and additional fees, there is not much left to live on.

          • Alex Johnson 6 years ago

            50% of income on housing is an absurd amount of money to spend. Absolutely, unquestionably stupid, with car or without car it does not mater. One simply does not spend 50%. Just because you can, it does not mean you should, or rather, that you can afford it.

            It’s the same as me arguing that I can afford to go and finance a brand new 911 Turbo. Or that I can afford a Patek rather than a nice Tissot.

            You mention people making above 100k, that might very well be with your clients, but given my position at work (I get to see contracts) in an office of ~400, average salary here is probably around 45k and this is Toronto. Most of my friends (blue collar for men, office jobs for women) consider 65k a good salary and few actually make that.

            If people are to spend 50% of their take home on housing, where does the rest go? Something has go to give because that means they are not spending money elsewhere for the good of the economy….but the thing here is that, they are spending. But this is all on credit, and there is only so much this debt can grow and something has go to give, and what that is we all know.

    • Reply
      MH 6 years ago

      What’s good about your scenario is clarity. Regardless of taking every best case assumption, it does not try to dance around the fact that even for well-to-do couples in Toronto it has come to the point where the choice is simple – either children or housing.

      I will leave the challenge of solving the puzzle of how a “fierce competition” can lead to price declines month after month to someone else.

      Also I will leave it to someone else to figure out why would anyone want to assume a serious liability to buy a quickly depreciating asset.

      • Reply
        Al Daimee 6 years ago

        MH wrote: “I will leave the challenge of solving the puzzle of how a “fierce competition” can lead to price declines month after month to someone else.”

        The stats that are presented are macro Toronto/GTA and are weighed down by those areas or homes that have adjusted downward more than others. With real estate, there are many factors to consider in determining value and it isn’t readily apparent until one is actively looking and comparing properties to see why certain ones are getting 10+ offers while dozens of other listings languish untouched on the market.

        Recently, an East Toronto home had 19 offers on it and it sold for what I believed to be about a $50K premium. Why was this premium paid? The lack of compelling alternatives at that time. There needs to be better quality of inventory, not just more quantity, to see the market come into balance. I’m really hoping to see more of that quality inventory come to the market, because it is can be very discouraging, even as an agent, to be a buyer in this market.

        Homeowners are choosing to stay in their homes longer term and renovate rather than move, because it is cheaper to do so. This is causing a bottleneck in sales volume, too, which is why sales volume figures will continue going lower compared to last year for freehold homes.

        One can argue “well why not buy one of those untouched homes and fix it up?”. The problem comes down to cash flow (downpayment + renovation costs), fear of getting a bad contractor, or the time it may take to get the renovations done. Better contractors are being choosy in their work and are often booked up for a year or more in advance. Homes in a desirable location with good “bones” tend to sell quickly and in competition, as well, as DIYs and contractors are in a better position than a regular homebuyer to compete.

    • Reply
      vnm 6 years ago

      Al Diamee … Nicely outlined, and almost hypnotically convincing, but alas, it’s the kind of heuristic bubble environment reasoning that’s gotten us into this mess.
      For how many people and for how long is making that kind of profit on a $600K property a remote possibility?
      One can cherry pick scenarios (both good and bad) until the cows come home, what I’ll say about your example is that it’s close to what I went through, with higher dual incomes, buying a mid-town house that cost 1/5th what it would today, way lower taxes, dodging all the major bullets, no recession or layoffs, virtually no restaurants or $4 lattes, or family Club Med vacations
      … 2 kids and we barely made it.
      And that was living through the greatest period of economic wealth appreciation in modern history.
      I remember thinking when the kids were toddlers, and basic daycare was $2k/month, this is hard, but it will get easier. LOL!
      Anyway, nice try. At least up until your last paragraph, which to give you the benefit of the doubt, will assume illustrates a stunning naivety.

      • Reply
        vnm 6 years ago

        That is, the paragraph beginning … The perception that the recent rise in interest rates is going to have a negative effect on housing is unwarranted

        Seriously …?!

        • Reply
          Al Daimee 6 years ago

          @Vnm: I can see how you can take that last paragraph the wrong way. Allow me to clarify my remark.

          The RECENT rise in rates is not enough to make homes decline in price, it will just diminish the rate of growth. It’s like taking less pressure off of the gas pedal, but you are still accelerating.

          I do also mention in the same paragraph “It will take at least a few more years before the market is negatively impacted by rising rates…”. When I say negative, I mean devaluation (ie. correction) purely attributed to rates AND those rates need to continue to increase.

          We have been spoiled by sub-3% rates and it certainly has been a contributing factor to the rise in home prices. I believe we will need to see rates go above 4.5% to drive down prices. The reality is that it will not be a 1:1 adjustment, meaning for every dollar paid extra in interest, the purchase price will not drop enough to offset this. Thereby, the net cost of ownership will still be higher down the road. Those who are aware of this do feel a sense of urgency in buying now, while rates are lower.

          • vnm 6 years ago

            Again, your arguments sound persuasive but for one not inconsiderable oversight, the well is only so deep. Speculators have pumped up the cost of housing beyond what buyers can afford, despite whatever “sense of urgency” they might have. That’s why the major banks and all 3 levels of governments are now taking measures to put the brakes on. It’s turned into a full blown social problem.
            Riddle me this … if the price increases in late 1980s were actually caused by demographics and a shortage of supply (as was similarly claimed back then), how did the collapse in prices remedy that? Homeowners and tenants didn’t suddenly spontaneously combust in 1990 and create new vacancies.
            Houses and apartment buildings don’t pop in and out of existence due to a rise or fall in prices. That’s what you are asking us to believe.

    • Reply
      bluetheimpala 6 years ago

      Ugghhh…come on Al…if your narrative requires a page of ‘yada yada’ with the same old schtick we’ve been readingfor years, it seems like you’re trying to convince yourself not anyone else.
      Those who con other must first con themselves.

      So myopic in your view. Short term and looking at the wrong piece of the puzzle. Classic number jockey. You should go sell used cars Al, you’d make a killing. Scratch that, we don’t need old people being conned into buying 1997 LeBarons…stick to real estate.

    • Reply
      RM 6 years ago

      Am I the only one that finds it laughable that anyone can suggest, with a straight face, that a household should carry an $800k mortgage? My household income is more than the “working professionals” in this imaginary scenario and these numbers leave me breathless. Besides, this is incredibly optimistic given that the average household income is, what, $75k? Let’s do the calculations on that. I’m not suggesting that, anecdotally, there aren’t people who fit that profile but there’s a bigger picture here that has to take into consideration all the stats working against this scenario.

      • Reply
        Dylan 6 years ago

        By no means. I think you are exactly right. The numbers really are science fiction, people have completely loss touch with reality. Toronto isn’t even in the top 20 cities in Canada in terms of income, and based on the numbers, is in the biggest bubble … in the entire world!
        Virtually the only people who want to move to the city these days are immigrants and young people just starting out. And for the most part, aside from wealthy foreign students, they don’t have anywhere near that kind of money.
        A decline in prices of at least 50% is inevitable, and with the crazy debt levels, once inflation and interest rate increases trigger the next recession, they could fall much lower.
        My house has increased in value 600% over the past 20 years … and no renovations or shiny marbly BS whatsoever. Totally crazy. I’d have no complaints except that the city has correspondingly gotten 600% worse in liveability, it’s soul is being hollowed out by money and greed, and i despair for the young, the creative, and the marginal.

    • Reply
      Dennis 6 years ago

      After tax income on 70K income is only $4,300 after payroll expenses
      For 2 people that is $8,600 not $9,000, that $400 is material as you have taken every other stretch.
      1. They will not have children for 5 years.
      2. They have no company pension plan as that will force them to contribute, lowering their take home pay.
      3. They will have no car.
      4. They will never experience any time off work, job loss.
      5. They will extend their amortization on renewal.
      6. They will want to move from their downtown condo to a suburban area.

      • Reply
        Frank 6 years ago

        If they have two kids, day care in Toronto would easily cost them almost $4,000 a month!

    • Reply
      Jennifer 6 years ago

      And what will happen when they have the $4,000 a month mortgage and then have a baby (since I assume that’s the reason they want to move to the detached house)? One person’s income gets cut by more than half for the first year, followed by minimum of $1,500 a month in childcare costs when they return to work (though it will likely be closer to $2,000 a month in toronto). And that’s only for one child…

  • Reply
    David 6 years ago

    The spread does differ depending on the neighbourhood. Eastside Leslieville area I saw one detached house – 2 bedroom (no parking) sell quickly around $900K. Standard construction 2 bedroom condo sold recently for $630 range. That’s the price gap people should be looking at; 2 bedroom condos vs homes in specific parts of the city. Once it get anywhere close to the low $200K that will cause people to switch. But as they say; we’re not building any new land in downtown Toronto just new condos on old land.

  • Reply
    Justin Thyme 6 years ago

    The power of statistics.

    Minimum wage in Ontario went up by 20%.

    Middle class incomes are going up by 2%.

    Headlines: ‘Lower income gaining faster than the middle class – the gap between the rich and the poor is rapidly closing’.

    Ummm, right. 2% of $200,000 is still more than 20% of $19,000.

    • Reply
      Trader Jim 6 years ago

      Right? The gap between lower and middle class people are closing, but only because middle class people are being left behind. We have huge asset inflation as a result of low interest rates. Those with assets, reaped most of the gains. Those without, had their cash on hand and earnings devalued in real terms. Not CPI based terms, REAL terms.

  • Reply
    40k a year millionaire 6 years ago

    Toronto Condos are selling like 720p 42 inch Insignia TV’s on Black Friday, Deep down they prefer a 4k Samsung 65 inch but they just cannot afford that right now. But add a little irrational thinking and FOMO and they just locked in a deal 25 years on that Insignia that is slightly under the price of the Samsung.

    were almost there folks just a few more bumps on the road, and those Samsungs will be on a blowout sale which will also take those unwanted high supply of Insignias down with it even further aswell.

  • Reply
    bluetheimpala 6 years ago

    Fed minutes are out! Fed minutes are out! More hikes as expected. BoC will follow. To paraphrase Goldmember “I like my monetary policy ‘toight like a toiger’ …”…I’m off to buy some lube and a bottle of Jack so I can ease my pain.
    Yes I posted the exact same thing in another article..sue me!

  • Reply
    The Gap Between The Price of A Toronto Condo and A Detached Is Closing Fast – Top Real Estate News 6 years ago

    […] Toronto real estate prices have been diverging recently. Toronto Real Estate Board (TREB) numbers show that detached prices are falling, while condos are at an all-time high. This has pushed many people to ask, how expensive can a condo get – relative to detached prices. Condo prices are getting closer to detached homes, but currently the gap isn’t unusual compared to historic trends. Toronto condo prices are rising less quickly than they were last year, but are still making a huge jump higher. TREB reported a condo benchmark price of $469,800, a 0.34% increase from the month before. read more here… […]

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