Why Condos Are Back

I often go on about how great I think houses are as an investment in Toronto. They are in limited supply in a growing city, and there are very few builders planning to build any more. Condos, on the other hand, are in great supply, particularly high rise condos. Many have even set off the alarm bells that they are in oversupply.

I am not here today to prattle on about how many condos are in Toronto. You can easily lift your head up downtown and take a 360 degree look around the city. It's changed. No doubt about that. Still, I am here today in praise of condos. At this particular moment in time, condos are not looking so bad - at least if their windows are not falling to the street below.

So, why now? What has changed?

Well, here's a few reasons.

1. There's less condo inventory than you think.  For years now, everyone has been worried about the unsold condo units in Toronto and the pace of new condo units added to the existing inventory. It's a pretty fair concern to have. A growing number of unsold units could indicate that there is too much supply and not enough demand. The truth is, according to Urbanization Inc., the number of unsold condos in Toronto have dropped 13% in the second quarter of this year compared to a year ago. Simply put, more condos were sold this year than last year. The number of unsold units sits at around 17,700 this year compared to the 20,800 unsold units from last year. This may be a sign that this worrisome clump of unsold condo units are actually being absorbed. Should we break out the party hats and uncork the champagne? That may be a bit hasty, but some may consider this a sign that the condo market has come back from the brink of oversupply. 2013 and 2014 where the two years to watch in terms of the most new condos hitting the market. We have passed those two years. From 2015 onwards there will be fewer new condos coming to market.

2. Affordability. Some may be wondering why there are so many people buying condos. Well, a lot of this would have to do with affordability. In other words, houses of all sorts and even lowrise condos have been performing incredibly well in terms of appreciation.  In the last few years, some of these have seem double digit increases making them more and more unaffordable to a larger number of people. So where do they turn? To high rise condos that are more affordable and have not been increasing in price the same way in the past five to seven years as their smaller cousins.

3. There are still investors out there. Though I do believe many of Toronto buyers are largely those who plan to live in their condo units, there are those investors out there who buy up our city's condo units. And in case you have not noticed, the Canadian dollar has been slip sliding away. It was not too long ago that we were on par with the U.S. Now that we're hovering around 75 cents to the U.S. dollar. U.S. investors appear more keen to buy here now for the simple fact that it has become a whole lot cheaper for them.

4. Condos are in awesome neighbourhoods.  For those who truly embrace downtown life, then condos are a reasonable option. A house in a central and established areas would most often clear a million dollars provided it didn't need to be gutted. For some, an affordable house is too far away. These days, if you like to walk to work and to the gym and be near a subway, condos are the best bet.

5. Lifestyles are a changing'. Travel seems to be a high priority for a lot of people these days, especially those who don't have kids or your kids have grown up and left the nest. These folks want to be able to leave on a European or Pan-Asian adventure for months at a time or spend several weeks up at the cottage. Houses are too much work and maintenance. Condos supply the security and the lock-it-and-leave-it option for extended periods of time.

Now, to be clear, I don't want to suggest that there is nothing that could throw the price appreciation on condos off their course. There are. Rates could go up by leaps and bounds. There could be external factors - another world financial crisis, for example. There could be an element of fear that comes into the Toronto market as a whole that could bring prices down. My point here is to say that the oversupply argument that so many have been using for the reason that condos will crash does not seem to be taking hold. The panic over the oversupply of condos may not hold as much bite as many have anticipated. Once again, the art of predicting when a real estate market will change has proved to be tough to do.

When Condos Are Better Than Houses

"Drive til you qualify." I've heard this phrase used more and more over the past year. It is currently been thrown around in North American cities where downtown prices have increased more than the suburbs and commuting is painful. Cities like Toronto. Basically, the logic of "drive til you qualify" goes something like this: If you cannot afford a house downtown, then you keep on driving until you are able to find a house in your price range. For those with more money to put down on their home or for those who qualify for mighty mortgages, they won't have to drive very far. They could land in Cabbagetown in the east, still walkable to downtown or Little Italy in the west, just a touch west of downtown with a thriving established neighbourhood. Still can't afford here? Then you keep on driving. Try the advanced emerging neigbhourhood of Leslieville in the east or The Junction in the west. Still too much? Then try an early emerging neigbhourhood like The Danforth Village in the east or Oakwood or Caledonia in the west. Thinking that will tap out more than you can afford, then you keep on driving out of town for some of the lowest prices in the GTA in Durham region or in Hamilton to the west.

I'm sure you understand my logic here. Though there are exceptions to this rule, it would largely appear that houses cost less the further you drive, for the most part.

But the thing to remember is that there are exceptions. And if you cannot afford to buy a house in High Park, then there are still choices for you. I often talk about the benefits of owning a house, but I think if you want to buck the "drive 'til you qualify" trend, your best bet is to look at a condo. Why? you ask. Well, condos have not increased in price as much as houses. So, they are much more affordable. There is a better supply chain when it comes to condos. More keep coming out to accommodate the demand. With houses, the demand is greater than the supply.

To be clear, it's not that "drive to qualify" does not effect condos at all. It is true that condos in downtown Toronto will be more expensive than ones in Hamilton, but you can still live in a central, established neighbourhood in a Toronto condo for a reasonable price. I currently have a boutique-style condo with parking and a locker in Little Italy that is 764 square feet with unobstructed south-facing views and a modern kitchen and washrooms. It is available at $489K. You would have to drive pretty far to find a house at that price, and it would not have the pizzazz of Little Italy. If 489K is too rich for your blood, there are still options for less that will keep you in a central location.

 My point here is that if you are one of those downtown Toronto folks who needs to be in the city, you can find a property downtown to live in. You have to choose your condo carefully. Not all condos are created equal, but you can afford to be in the centre of it all and you don't have to drive til you qualify.