Young buyers drive Toronto condo boom
The worldwide economic slowdown took a bite out of stocks and real estate values almost everywhere in the world.
But with a record 20,000 new condo units set to come online in 2010, the recession appears to have bypassed that part of the Toronto real estate market.
Love them or hate them, Toronto is fast becoming the city of condos.
The condo building boom that began several years ago is showing resilience, as low interest rates and a steady stream of eager new buyers are sustaining a market that looks affordable by international standards, some experts said.
Condo consultant Barry Lyon said 2010 is poised to be a record year for Toronto condos.
"We have become the largest condominium market in North America in terms of new production," he said. "Bigger than New York."
This week, CBC Radio reporter Jamie Strashin's Condo City series chronicles Toronto's condo building boom. Find out why the market is so hot on CBC Radio One — 99.1 FM in Toronto.
There are a number of factors, said Jasmine Cracknell, a research assistant with N. Barry Lyon Consultants Ltd., who tracks the city's condo market.
Despite price gains and a wave of new units coming onto the market, condos remain an affordable option for domestic first-time home buyers, she said. And foreign buyers invest because the prices seem very competitive internationally, she added.
"When we have people from out of town, they cannot believe the price," she said. "When you think of New York, [prices] are $2,000 a square foot [but Toronto] is closer to $500 in the downtown."
She dismisses the notion that Toronto's market might be overbuilt, because the way building projects are financed in Canada precludes that from happening.
Canadian regulations outlaw lax lending rules such as zero downpayments and 40-year mortgage amortizations that helped inflate the U.S. market.
In addition, condo developments in the city need to be 70 per cent sold before banks will finance their construction. Which means shovels don't hit the ground unless there is genuine demand for the units and they can afford them, she said.
Young buyers drive demand
"People are living in these buildings, even if they do become rental housing, " she said. "It's not like they are vacant."
Whatever the cause, the condo trend shows no signs of slowing. According to the most recent data, October's seasonally adjusted annual rate of housing starts increased by 14.8 per cent in Ontario. The CMHC attributed the jump to more activity in the multiple-starts segment, which includes condos.
Data from the Canadian Real Estate Association shows further evidence of a booming market. The agency does not break out the data for condos alone, but residential housing in Toronto was pointing straight up for the year up to October.
The total value of housing sales nearly doubled to $3.5 billion in October 2009 compared to the same period a year ago. Unit sales were up 64 per cent and the average price in the city was $423,507, an increase of 20 per cent on the year.
Much of those gains are coming from condos, as buyers like Michael Petrucco buy in.
He has just moved to a condo in Leslieville with his girlfriend. After living in suburbs for years, he opted to move downtown and cut down on a punishing commute.
"Not having to commute from Thornhill makes my life easier, I'm home earlier," he said.
And he's not alone in that desire, Lyon said.
In contrast with the 1980s, when the Toronto condo market was just getting off the ground, it's young professionals such as Petrucco driving the market this time, Lyon said.
Back then, retirees made up about 80 per cent of the city's original condo buyers.
"Now it's a high proportion of singles, and some couples," Lyon said. "Not many of the people who formed the original condo market in Toronto, the empty nesters."
Indeed, Cracknell notes that the ratio has flipped — a full 80 per cent of condo buyers today are young, first-time buyers.
Many are eschewing ever renting and opting to live with parents before buying condos in their early twenties. Even in the last five years, the appeal of the downtown condo has changed, Petrucco said.
"You didn't have the same infrastructure, you didn't have the grocery store or movies," Petrucco said.