Deteriorating Affordability in Toronto: What to Do

The figures are out again, and one more time Toronto real estate  receives a gold star in September with houses selling over 10% higher from September 2014 to September 2015. This kind of news used to be incredibly exciting for me as a first time buyer over ten years ago. I would pull out my calculator and guesstimate just how much my current home, at the time, may have appreciated. But after getting that gold star year after year, you come to expect it, even though you know it can't last forever.

And despite all the condo crash talk of the past few years, they are also on the rise in most condo buildings. Condos are performing better than they have in years. Steady and healthy at the moment - rarely two words assigned to condos since 2010.

For sellers or those who have purchased over a year or more ago, you can breath easy. Buying is even tougher now if you're still looking.

For first time buyer or for those who are keen to buy another property, it may feel like your pace of saving cannot match the rise in prices, especially if you want the very coveted detached house, the golden standard of a dream home in this city. It may feel downright depressing to know your friend who bought three years ago lives in a neighbourhood that you could not afford to buy in now.

This whole thing really does lead to two possibilities:

1. There is a new reality in this city. We are on the cusp of affordablility for housing being completely out of reach for many first time buyers or those without a serious familial investor on their side. The new reality is that houses in the city will be for the wealthier or the second time buyer. First time buyers will be sent to the surburbs or will need to start in a condo. There is something very true about this scenario. There is a shortage of houses in this city, and the city is growing. It's an unavoidable reality.

2. There is a real estate bubble in Toronto. If this is the case, I suspect it is largely because of interest rates. Once they move, that may cool down prices. For me, however, this does not change the fact that there is an increasing demand to live in the city and the city is growing without the proper transit system to move people. So, even if there is a correction, we will return to this same situation where houses are not being built any longer, traffic is lousy, and commuter trains could be a whole lot better set up and intergrated throughout the region with more frequent GO trains that extend further out.

So, if you are planning on buying in the next few years, what would be the best approach? Here are 5 options:

 1. Wait. If you think the market is sure to correct, then wait. You may have prices come down, and you can buy when the market bottoms out before heading back up. Of course, you do run the risk of waiting and watching prices rise even more. There are many people who have been waiting five or even ten years for a price correction, and now they have been seriously left behind.

2. Buy A Condo - Condo prices have not been on a tear the same way houses have. They are affordable, and usually have predictable costs ahead of them. Condos, to a large extent, are the majority housing option in most big cities. Density and condos go hand in hand.

3. Get Out of Toronto - I don't think you should go just anywhere. Not all areas connected to Toronto by the GO Train are the same. I still believe Hamilton is Toronto-like without the same house prices. Yes, it's a long commute, but it's cheap right now. Some areas are sketchy for sure, but things are changing quickly. Did I say cheap?

4. Get Creative - I had clients recently purchase a bike shop. No they are not bike enthusiasts, but with a little renovation, they were able to change a bike shop into a four bedroom home for them and their three kids. It looks amazing. The main floor is enormous. Yes, you will need a renovation budget, but sometimes these storefront with apartment upstairs could be had for less than the houses in a given area. Compared to the houses of the area, I would estimate they paid around $200K less than an equivalent 4 bedroom house.

5. Stay A Step Ahead of the Next Emerging Neighbourhood - There are still emerging neighbourhoods in Toronto where first time buyers could by a house or a larger condo. They are not as close to downtown as the used to be, but they exist. Think neighbourhoods along the new Eglinton Crossway. Great place for appreciation. In the east, consider homes near Danforth and Vic Park or even parts of Scarborough.

The reality is that we are currently moving toward deteriorating affordability in this city. It won't always be this way, but we are also a different city than we used to be ten years ago. Neighbourhoods that were considered fringe then like Leslieville, the Junction and Mimico are rarely the terrain of first time buyers any longer. This won't change. Once neighbourhoods have all you need in walking distance, it's very unlikely they will become cheap again in your lifetime.