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Price Gap Between Toronto Lofts and Houses Grows

10 Apr 2015
Price Gap Between Toronto Lofts and Houses Grows

It’s the great real estate divide. The price gap between Toronto condos–and this includes Toronto lofts–and houses hit a new record high last year, creating greater disparity in the Toronto real estate market than we’ve ever seen. This extreme division between the cost of a Toronto loft or condo and the cost of a house has continued throughout the first quarter of 2015 with no signs of reversing any time soon. The issue’s been widely covered in the media including this recent article in the Globe and Mail.

The divide has been exasperated by a dramatic increase in new condo completions and a movement towards shrinking condo sizes with smaller price tags. This rapid increase in smaller, more affordable condo stock is pushing up against an equally dramatic shortage in listings for single-family houses for sale in Toronto. Yet despite this disparity, and the awful winter weather we experienced, sales for both condos and houses in Toronto are up.

Although many realtors are experiencing a re-sale condo listings shortage in an around the downtown core, particularly with authentic Toronto lofts for sale, condo sales were up 13.5% year-over-year across Toronto as a whole in the month of March. And the sale of detached homes is also higher than last year (although not quite as dramatic an increase at 4.3%) despite a serious listings shortage. It’s the differences in price where we’re seeing the great gulf. The exact numbers change of course each time new sales stats are released by TREB but here are some rounded figures to give you the gist:

 

The average sales price of a re-sale condo in Toronto is hovering just under the $400,000 mark while the average sales price of a detached home in Toronto is around $1.05M. Semi-detached properties are on average sitting around $725,000. The picture shifts month-to-month, season-to-season, but you’re generally looking at a $300,000 to $350,000 price gap between condos and semi’s in the 416. So essentially, you can buy two condos and rent out the other for the price of one house. Lofts for sale in Toronto are typically higher priced than condos on average due to their character and rarity but there’s no denying the value of a loft in comparison to other housing types.

Of course the most dramatic figure is the price difference between condos and detached houses which are nearly three times more expensive. This is the figure that the media has been focusing on because it tells a dramatic story. Now in reality, most Toronto loft and condo owners move up to a townhome or a semi-detached property as a next move–they don’t jump straight to a detached house–and so a direct comparison does more to drum up unnecessary real estate fears than provide useful buyer information. But the disparity is something to bear in mind when property hunting.

After a strong but unusual winter sales period, here’s our advice for buyers thinking about buying a Toronto condo this year.

 

Buy as Much Loft as You Can Afford From the Outset

The great news is, you’re considering buying a Toronto loft which means you’re already on the winning side of the equation. In many buildings, we see lofts appreciate higher than condos due to their rarity and the demand for character properties. What you want to do is buy as much loft as you can afford to ensure that you don’t lose that profit in fees, LTT and closing costs by having to move too often.

Condos and lofts used to represent rung one, possibly rung two, on the property ladder for most Torontonians. While there are some buyers who love the simplicity of condo living and choose to live in a loft or condo for life, most “graduate” to a house once they get married, start a family or get a promotion that affords them a bigger, freehold property. But with this extreme price disparity we’re seeing between condos and houses, the dream of owning a house is out of reach for many buyers for the foreseeable future.

Why is this important information for you? Because you want to be careful when property shopping to plan for your future, not just your current lifestyle. This is particularly important if you’re at an age where your life could change in the next few years.

Case in point: we recently sold a client’s loft after just one year because he got married in that time period and they want to start a family quickly. We managed to make him a profit even 

after fees but that’s not always possible when moving so quickly. Staying put for three years is typically the minimum you want to aim for.

With Toronto real estate market conditions as they are, showing no signs of slowing down, we advise that you buy as much loft space as you can comfortably afford. We underscore comfortably because we never recommend stretching yourself above a 36% household debt-to-income ratio. Do not let today’s current low interest rates set you up for financial failure down the road if rates go up a few percentile points.

If you can comfortably swing a little more for extra square footage, do so. Even if you don’t need the space now, you may want it a year or two down the road. Buying a home you can grow with is a good way to ensure that you’re not eating into that hard-earned equity by moving too often.

 

Mind the Gap but Really Watch Your Square Footage Costs

The price gap between condos and houses is an important piece of data but even more important for loft buyers is price per square foot trends. Whether the market’s hot, cool or somewhere in between, there will always be market-value lofts for sale in Toronto and those that are wildly overpriced.

Thinking of buying a Toronto loft? The best way to examine a listings price to determine whether or not it’s a fair deal (beyond speaking with your realtor) is to look at current and historical price per square footage trends for that building as well as for comparable buildings. Our sister site condos.ca is the only Toronto realty website to provide exact unit sizes and condo price trends by building and by neighbourhood. Sign-up as a condo’s Insider and you’ll gain access to all of their data for free.

Toronto lofts are in such high-demand that it’s tempting to pay whatever it takes to lock down a deal, particularly if you’ve lost out in several bidding wars already. But no-one wants to pay significantly over what a property’s worth. If you’re facing an exuberant price tag on one loft, let it go. Don’t get emotional. There will be another listing soon.

 

Know Your Neighbourhoods

 

While location, location, location is becoming less important to buyers of houses for sale in Toronto out of necessity–many are priced out of prime neighbourhoods and getting anything within a reasonable commuting distance to the core is considered a score–it’s still paramount for Toronto loft buyers.

That’s probably the most important factor beyond affordability that’s driving demand for condos and lofts in the city. For a large portion of the market, it’s their only entry point into prime neighbourhoods in or around the core. But not all neighbourhoods are created equal when it comes to loft value appreciation. With prices moderating in some areas, you want to ensure that you choose your neighbourhood and building wisely to secure good returns down the road come re-sale.

Lofts should continue to see a 4% average annual growth, a trend we’ve been experiencing for a few years now, but an average is just that–it’s middle of the road. There are buildings and neighbourhoods that are appreciating well above average, some transitioning neighbourhoods that we predict will outperform the norm in future, and others that are actually losing value. You want to be on the winning side of that mix.

Roncesvalles lofts are doing really well for example, showing nearly 9.5% value growth in 2014. That’s outperforming the average value increase in 2014 for all GTA property types combined, including houses, which came in at 8.4%. Here are some stats from our colleagues at condos.ca:

 

The point here is that the big picture you get from TREB reports and from media coverage is important but you also need research and analysis at a micro-level to make a wise purchasing decision. Whether it’s with us or another realtor, we advise all buyers to work with a Toronto Loft Pro who really understands what’s happening not just in the overall Toronto loft market but a micro-level with individual neighbourhoods and buildings.

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