New Homes Price Gap

For the fourth consecutive month, and the 16th time in the last 20 months, the price of new single-family homes in the GTA has fallen. Having peaked over $1.3 million, the average price has dropped nearly 20% and now sits at $1,083,358. This is becoming increasingly interesting because the average price of a new condo remains on the rise and the price gap between the two housing types is closing fast.

Over the last year, new builds in the condo market have increased by 7%, or $56,287. In comparison, single-family homes are down $45,771, or 4%. The last two years have not been perfect for new condo prices, with a handful of month-over-month reductions (5 out of the last 20); however, the general trend has remained strongly positive, while their sector’s counterpart has had no success.

New homes price ratio augSource: BILD – Altus, Six Housing Sense

As of last month, the average new condo price was nearly 80% the cost of a new single-family house. The price gap, that at its peak was over $650,000 in 2017 (two condos for the price of one house), has now closed to only $242,559. After years of single-family home prices outpacing condos, 2018 brought a stark reversal of fortunes. As mentioned, this was the result of condo price gains, as well as the declines realized by single-family homes over the past two years. Though some recent pricing data is unavailable, by percentage difference this marks the closest the two housing sectors have been since 2006.

new home price gap augSource: BILD – Altus, Six Housing Sense

When analyzing these figures, it is important to consider other contributing factors. BILD’s numbers only show the average price from the entire GTA and do not regularly speak to average price per square foot, limiting information on how each municipality is performing or the size of units/houses. It is entirely possible that the smaller price gap can be explained by a larger percentage of new condos in August being bigger units in Toronto’s city centre, while new houses were smaller and on the edge of distant suburbs. A quick review of Toronto’s percentage of new condos sold in August year by year disproved at least part of that argument, as Toronto’s ratio remained relatively steady (see graph below). That said, there is greater flexibility in the percentage of single-family homes sold in each region from year to year, which could be influencing prices.

toronto new condo sales augSource: BILD – Altus, Six Housing Sense

The simple fact that the price margin has gone from 2:1 down to just 20% in two years speaks to an imbalance in the market. In comparison to prices in the resale market, while both segments are ahead of their resale counterparts, new condos have a far wider price difference, roughly 50%. This would suggest the average price of a new condo is more likely to level off than continue its recent strength. That said, in Toronto’s housing market anything seems possible, maybe condos will cost more that houses soon enough.

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