Condos aren’t the deals they used to be

Entering the housing market in Toronto or Vancouver is no small feat. With the high prices of detached homes, or even semi-detached houses, condos have become the affordable and realistic entryway into the market for almost all first-time buyers. That said, even condos are not the deal they used to be. The price gap between a condo and a detached home in both Toronto and Vancouver is shrinking, and its because condo prices are going up.

Over the past five years, the price relationship between condos and detached homes has been changing, while the massive price runs and retractions have taken place. As the cost of the average home started to rapidly rise in Vancouver and then Toronto, the price ratio between condos and detached homes changed. What had been a more consistent ratio began to shift in favour of detached homes.

C D Price %Source: REBGV, TREB, Six Housing Sense

As the graph shows, each city saw a weakening of condo prices in comparison to detached homes through the massive price gains in the detached segment. Vancouver’s ratio hit its low mark in May 2016, when the benchmark price for a condo was only 32% the benchmark price for a detached house. Since then condo prices have been on a strong and steady gain and now sit at 44.5% in comparison. Interestingly, Toronto’s ratio low was only one month after Vancouver’s in June 2016 at 37.3%; though the ratio remained fairly consistent through to April 2017. Since the detached home price peak in May 2017, the condo market has been on an impressive climb and now equals 48.3% the cost of a detached.

$ GapSource: REBGV, TREB, Six Housing Sense

Only five years ago the price gap between a detached and a condo was $558,200 in Vancouver and $412,600 in Toronto. Those days are gone, but the worst does seem to be behind us. Vancouver saw a near doubling of their price gap to $1,067,700 at its peak in 2016; however, it has since ceded a lot of ground dropping back to $832,200 as of November. The timeline shifts to 2017 for Toronto, but the story remains the same. Its price gap peaked at $762,100 only to quickly drop back down and now sits at $574,500. For both cities, while the detached market has seen price drops, the rise in condo prices has been at least as important to close the gap.

The rise and fall (or fall and rise depending on which side of the comparison you are on) can be attributed entirely to timing. For each city, detached homes made their break out price moves first and then condos played catch up. However, since the average price peaked in each city, it has been condos that have outperformed detached homes, allowing the price ratio to move in condos favour.

Following this price ratio in the future will be interesting for two reasons: first, because the ratio for each city is currently above its five-year average (17% above for Vancouver, 15% for Toronto). This would indicate that condo prices need to fall, detached prices rise or some mixture of the two to rebalance the ratio.

The second reason is because in November 2018 the price ratio in both cities fell. For Vancouver, that marked the first time in 25 months condos did not out perform detached homes (both segments dropped just condos by a higher percentage). In Toronto, while there have been a couple of times in the past two years that detached homes out performed condos, it is the first time in recent years where condo prices fell while detached prices rose. This could easily be an anomaly, however, it will make the pending monthly numbers all the more meaningful.

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