Twenty years ago, over 50 per cent of the new houses built in the Toronto Census Metropolitan Area were single-detached houses, and they sold for an average price of just over $300,000 that year. In 2015, under 15 per cent of newly completed homes were single-detached, with the average single selling for $893,000. In September 2015, the average price for a new single-detached house in the Toronto CMA was $1.17 million, a record high monthly result. These are extremely high prices, and out of touch for the average first-time buyer.
But have our expectations adjusted to match the market reality?
In late October, a women approached me after a market presentation I had given with a look of worry on her face. She was looking for advice to give her adult children. Those children, who were recent college graduates living at home and commuting an hour and a half from their home in north Markham to downtown Toronto, both want to purchase single-detached houses in the City.
I told her the truth: that the Toronto single-detached market has gone from being a Lexus to a Lamborghini. That is, with hard work, smart investing, and diligent saving, the average household could potentially be able to afford a Lexus in their lifetime – but they will never be able to afford a Lamborghini.
That is what has happened to the Toronto single-detached market, a depressing reality for many.
This mother looked disappointed, and I can sympathize: like all of us, she only wants the best for her children. But are historical standards of ‘best’ truly relevant in 2015? When I retold this story to the audience at a Toronto conference organized by the Urban Land Institute, Oxford Properties CEO Blake Hutcheson – another panelist – aptly commented that not everyone needs a Lamborghini. Similarly, I would argue that not everyone needs a single-detached home.
The reality is that the supply of new low-rise housing has decreased 40 per cent over the past year and due to land availability and affordability, fewer builders are building single-detached housing, which has driven prices to record highs. The advice I provided the concerned mother was that single-detached house prices are only going to appreciate more, barring a major recession.
I suggested her children consider buying a smaller condominium close to work, reduce the commute, and grab the first rung of the property ladder. And that’s the same advice I’d give to anyone else: today’s market is different, but that’s not a reason to avoid ownership.
There are a lot more options other than a Lexus or a Lamborghini – perhaps a small compact car is a better first step! Consider buying a condominium downtown, or investing in pre-construction to save money. First-time buyers and young families should reassess what they really need, and make the smart affordable choice.
Get in shape because you’ll be climbing that property ladder in no time.
About the author: Ben Myers, Senior Vice President, Market Research and Analytics, Fortress Real Developments