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Toronto Condo Prices Are Getting Closer To Detached Units, How Normal Is That?

Toronto Condo Prices Are Getting Closer To Detached Units, How Normal Is That?

Toronto real estate prices have made some strange moves over the past couple of years. First was a rapid climb in all segments. Then detached prices started falling, while condo prices continued to climb. Now one of the most common questions people email us is, how close can a condo price get to a detached home?

It’s impossible to nail a direct number, but we can get an idea looking at historic trends. Today we’ll be looking at the price ratio of a condo to a detached unit in Greater Toronto. Then we’ll look at how this compares to the long-term trend, as well as how this ratio might change in the future.

Wut?

We’re looking at the price ratio of a typical condo apartment to a typical detached home in Greater Toronto. A condo will usually be cheaper than a detached unit, of similar build quality and location. There are a few exceptions, but this is the rule since detached homes come with land – condos do not. Yes, a condo can be a lifestyle choice, and if you want to pay a lifestyle premium, go ham. However, a detached home is more valuable on fundamentals, so a gap is usually maintained.

The Price of Condo Vs. Detached Units

Let’s start with where we are, by looking at September’s numbers from the Canadian Real Estate Association (CREA). CREA data shows that a benchmark condo in Greater Toronto is $460,200 in September. Meanwhile, a benchmark detached is at $872,500. Basically, a condo is almost half the price of a detached home.

Source: CREA.

A Condo Is $412,300 Cheaper

The gap between the price of a condo, and detached unit has actually been dropping recently. A detached home was $412,300 dollars more than a condo in September, the smallest gap since May 2016. The largest gap was achieved in April 2017, when the price of a detached was $520,000 higher than a condo. We’re currently 20.71% below that peak. Here’s how that looks as an a dollar value.

Source: CREA.

The Ratio Is Over 7% Lower Than The Historic Trend

As a ratio, we’re seeing that gap start to rise again, and very quickly. The median price ratio of a condo to detached unit from 2005 to this year is 56.87%. Currently the ratio is 52.74%, over 7.26% lower than the median. In order for this ratio to return to the baseline, the ratio would have to rise another 7.83%. There’s a few ways prices would move to get this ratio higher, but let’s go through a quick example to illustrate how this trend might correct.

Source: CREA, Better Dwelling Calculations.

The easiest to understand movement would be condo prices rising, or detached homes dropping. If the benchmark condo price rises to $496,200, a 7.82% increase, we would hit that mean-line ratio. If a detached home drops to a benchmark of $809,500, a decline of 7.22%, we would also hit that meanline. It’s not all that complicated.

Now, that was a pretty blunt example to illustrate the ratio changes. It could be a combination of the two, or something entirely different. However, ratios like this tend to go back to the meanline at some point or another.

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10 Comments

  • Reply
    Nick Papagorgio 2 weeks ago

    Put your hand up if you’ve purchased a condo for over $800 a sqft! Everyone with their hands.. you are a gibroni..

    • Reply
      Mario 2 weeks ago

      Care to elaborate Nick? I’m not so sure you comprehend what was presented in this post

      • Reply
        Nick Papagorgio 1 week ago

        I took the article as a an opp. to post a slightly off-topic comment regarding the rising average $/sqft in Toronto..

        The article is comparing the benchmark condo price to the benchmark detached housing price, and taking into consideration that overtime, the benchmark condo is shirking in size (sqft) and yet increasing in price, I assert that these higher levels of condo $/sqft are out of step with what I perceive the value of the Toronto condo market to be, when comparing to other markets around the world. . #gibronis

  • Reply
    Jim 2 weeks ago

    I think this is one the greatest article I have read regarding RE.

    The ratio explains why condo market is still hot while detached market is falling. Condo market will continue to stay hot until next summer. Yes, still 7% more to go. I created my own data base and I came to the same conclusion!

    Where is this market headed? Detached home prices will fall by 7%, while condo market will plateau, in the near future. There is no risk in Condo market. However, if detached home prices falls beyond 15%, condo market will follow by 3~5%. That is not much of a risk. I will still bet on Condo.

    Detached home market is clearly headed South both in Vancouver and Toronto.

  • Reply
    Sam 2 weeks ago

    Interesting… I personally think your analysis is a bit simplistic in that the typical detached house and typical apartment don’t stay the same over time.
    Anecdotally, I would say most newly built condos get smaller and smaller (I’ve seen 1br smaller than 500) while most newly built detached houses become bigger in terms of square feet. Do you have any data on that? If my anecdotal observation is in fact true, there’s no reason the ratio should remain the same.

    • Reply
      Charles Konopski 1 week ago

      Great point Sam! The other thing to consider is that there are more new condos coming onto the market than new homes. So you are pumping in higher cost inventory. Also, if you have a drop in people flipping homes this would also decrease the average value. I am not talking about buying and selling to make an easy profit, but buying a beater house for $500K, doing a huge renovation and re-selling for $700K. With reno-flips, you might make $50K profit off reno, and $50K off of the price increasing. Now that prices are dropping (or at least not going up), it makes it far less profitable for reno-flippers which in turn would further push down average prices.

  • Reply
    Hiba Shah 1 week ago

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    • Reply
      Anne Hamilton 1 week ago

      Thanks, Hiba Shah.

      Do you have any reps in Yemen, the Central African Republic, or in Rohingya-majority states in Myanmar?

  • Reply
    ET 1 week ago

    We sold our 850 sq. ft. 2 bed 2 bath condo and bought a detached, in September. We noticed empirically that the spread between the two types of housing was the narrowest we’ve seen in awhile. Glad to see we were right on the money!

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