Every month the average home price in the Greater Toronto Area is reported to reflect the current state of the market. However, the number that is shared only ever reflects the average amount spent on a home, it never captures the market shares of the different home types. This missing information is important because these percentages are changing and as a result the true home value increase is not being reported.
In the second half of the 20th century, the flow of people in urban areas was mainly out of the city centre to big homes in the suburbs. Interest in downtown living was minimal in comparison to having a big house, large property and a manageable commute. More recently preferences have been shifting, with commutes only getting worse and the city offering a vibrant lifestyle, more and more people are moving back to the city centre or around regional transit hubs. Add in the modern push towards higher density throughout the region and we have a housing market shifting from detached homes to townhouses and condos.
What this has meant for Toronto is an average home price that is not truly comparing apples to apples from 20 or even ten years. In 1996, 55% of all homes sold in the GTA were detached properties. In comparison, just 18% of properties sold were condos. This breakdown of housing types created an average home cost that was far more aligned with the price of detached houses than it is today.
Source: TREB, Six Housing Sense
As the graph shows, by 2001 the percentage of homes sold that were detached houses had fallen below 50%. Detached houses then maintained their market share for roughly 15 years before falling as house prices skyrocketed in 2016-2017. Likewise, condos’ percentage of the market was fairly level from 2011 to 2016 before the condo market took off in 2017. Condo sales jumped to their highest market share and have since made up 29% of the market over the past 2 ½ years.
The changing market characteristics have resulted in the detached sector losing 21% of its market share since 1996, while the condo market has grown its stake by more than 60%. What this means for average home prices is that we are not comparing like numbers when we report how much the average price in Toronto has climbed. To do that, we must reflect current prices at previous market shares to accurately show how much prices have grown.
Source: TREB, Six Housing Sense
If 2018’s average home price reflected the same market share as in 1996, the average price would have been more than 7%, or over $55,000 higher. This is to say that home prices have risen even more than the current monthly and annual numbers would suggest. The market is benefiting from the increased supply of comparably less expensive condos to hold prices below what they would be if we were doing an apples to apples comparison.
Source: BILD – Altus Group, Six Housing Sense
This mistaken average price comparison is likely going to get worse with condos making up more and more of the new build market. Peaking at over 80% in 2017 and 2018, the evidence suggests it is almost inevitable that condos will eventually replace detached homes for the largest market share. Meaning future annual comparisons will become increasingly less accurate and less meaningful.
Whether or not the condo market share continues to grow it is important to reflect accurate updates in housing data. The error may only be 7% right now, but showing comparable figures is important to truly articulate the changing market place. Because you are not really reporting that the average home price has doubled if the size of the average home size has shrunk in half.