How Freehold Prices Can Dominate Again

Ever since the Foreign Buyer tax was announced in 2017, the freehold market has plummeted in price with very minor exceptions. Combine that with the lack of credit available as a result of the stress test and Toronto has had the softest freehold market in the last 10 years. That said, we do see some indications of the overall market picking back up some steam – we saw the biggest jump in the number of transactions (percentage wise) in the reports that came out for the month of May. If you missed the Market Watch video about how the real estate market is bouncing back faster than expected, be sure to catch that video here: May Market Watch

The Moment is Yours – I’ve been preaching to everyone in the last 6 months that if you own a condo and if you ever wanted to move into a detached freehold property, now is the time to consider taking action on the upgrade. Will this window of opportunity be here for long? I don’t think so. As they say, carpe diem – seize the day!

Below is a graph from Realosophy that I’ve added some notations to in order to show you the current trends. This graph is a good summary of the price gap that exists between a condo and a detached property.

source: Realosophy

Honey, I Shrunk the Gap! As you can see in the graph above, the price gap between a condo and a detached in the last 2 years has shrunk from $700K to $450K. This is all thanks to the demand for housing that we have experienced. The market shifted not because there was no demand, but it shifted because people lost the interest and the ability to buy detached and freehold homes.

Shifting Gears – Ultimately, that pushed the price point down for many buyers in terms of what they could afford (i.e., a condo). However, with the latest numbers and how the transactions are broken down (that we saw from the May market results), people are going to start noticing the shift in freehold demand.

Take a look at the change in demand for each asset class in the last five months of 2019 vs the same months in 2018 in the graph below.

source: Realosophy

You can see that the change in condo demand is actually negative. This isn’t to say that condos aren’t selling (and trust me they are selling FAST!). Rather, this indicates that the more expensive asset class, despite the mortgage stress test, is seeing significant, double-digit growth.

I ultimately attribute the start of this shift to the shrunken price gap between a detached and a condo. With so many people being able to sell their condo at a much higher price (vs what they paid for it years ago) and buying a detached at a lower price, this is one of the best times to be buying a detached home in the last 5 years.

What the Future Holds – Our inventory has not really changed much as we don’t build enough freehold properties in the GTA anymore, so it is expected that we will run out of inventory at some point. When this happens, demand will far surpass supply and this is when we will be seeing another surge in prices for detached freehold homes.

You can already see there is demand for freehold semis and towns as per the graph below showing the Months of Inventory for May 2019.

source: Richard Robbins

Sooner Than You Think! The lower the months of inventory, the stronger the demand (i.e., the shorter bar graphs represent asset classes with the highest demand). From the graph above, you can see that the semis are the strongest right now. Detaches were at 4.5 months of inventory 2 months ago, and here we were in May averaging 2.45 months of inventory! This is why I believe freeholds can dominate the transactions again sooner than we all thought. There is going to be a point when condos are going to keep increasing in price and the gap with detached homes could potentially get even smaller. When that point is reached, I’m expecting that we will start seeing substantial price increases in the freehold market.

The Wrap – So if you have ever aspired to own a detached home in Toronto, the opportunity is NOW, especially if you already own a condo. The ability to upgrade while the gap is the smallest is absolutely something you should jump on. If this is an opportunity you’d like to seize, then make sure you give us a call (416) 436 9436, to take advantage of this opportunity!

Bonus: Final Thoughts – I’ll leave you with a final note to think about as an added bonus. This year, I fully expect the Liberal government to pander to the Millennials, who represent the largest voting and real estate buying cohort that we have ever seen.  They will do this by removing the stress test. Imagine what is going to happen to the market if and when that happens!! Houston, be prepared for TAKE-OFF!!!

Until Next Time,
(416) 436 9436

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