A detached Toronto home now costs just shy of a cool million. Is this real life?
Earlier this month, media outlets were abuzz over a new report from the Toronto Real Estate Board. In April, the average price of a detached home in Toronto hit $965,000. The fact that Hogtown’s homes are fast approaching the million-dollar mark was welcome news for homeowners and -sellers, and a heartbreaker for prospective buyers. But no matter which side of the fence you’re on, the question remains: How the hell did this happen?
Keeping in mind that near-million-dollar figure, the average price of any Toronto home—416 or 905; house or condo—is a more palatable $577,898. Still, we’ve seen a monumental increase in the price of city properties over a short period, and the average price of a T.O. home hasn’t decreased year to year since 1996.
To what can we attribute this incredible bull run? And, more importantly, why has the rise in the market rate been so dramatic, particularly in the past five years?
› Supply and demand: It’s high-school economics, folks: When demand outpaces supply, prices increase. This has been the case in Toronto real estate for quite some time now. In a perfect world, every Torontonian would own a home—a detached one on a large lot with a pool; the Canadian dream. There just aren’t enough houses to satisfy the insane desire for them, and there never will be. With the condo boom, the sky is the literal limit, but where can you build more houses in Toronto? Greenwood Raceway near The Beach was shuttered in favour of a hundreds-strong housing development, but that’s a rare case. Other than tearing down bungalows and replacing them with two semis, there isn’t much new stock in single-family homes.
› Interest rates: Real-estate bears have long suggested that low interest rates have artificially inflated the market. There’s nothing artificial about the boom, in my opinion, but I do agree that good rates have helped boost prices. Ten years ago, my first mortgage was five years fixed at 5.99 per cent. Elders told me rates would never be that good again, and suggested I lock into 10 years at 7.29 per cent. Wrong. At present, five-year fixed mortgages go for as low as 2.79 per cent. This not only lets buyers take on more debt, it also allows those who can’t afford higher rates to consider purchasing.
› Crappy commutes: When I interned at Celestica in Flemingdon Park in 2001, most of its office workers lived in Markham, Ajax, and Pickering, and drove to work every day. Now, fewer and fewer of my clients want to commute; instead, they’re ponying up for Toronto properties. Political gridlock at City Hall and Queen’s Park has resulted in similar gridlock in the streets, and it’s made GTA living a nightmare for downtown workers.
› Baby boomers: There’s a common misconception that boomers are selling their detached properties in favour of condos. I can tell you from my own experience that many are offloading their houses and buying houses. One of my clients sold his place in Leaside for $1.4 million and bought in Summerhill for $700,000. He got less square footage and equity in the new property, but he’s still in a house—that’s one fewer for the rest of the buying pool. (Some boomers have also taken to giving out a lot of interest-free, no-payback loans to their kids. Whether it’s help with a down payment or the outright purchase of a home, young owners aren’t relinquishing their properties when the going gets tough.)
› Lifestyle: Single-family homes are most prevalent in neighbourhoods with that “golly gee” community feel, where parks and transit access are in abundance, public schools are solid, and amenities abound. As school rankings drop, public transit wanes, and community services are cut, buyers look for better, more expensive areas in which to plant roots, which only drives prices higher.
I wish I could say that the cost of a single-family home in Toronto will remain steady, but I don’t see that happening anytime soon. Until our streets are lined with five “For Sale” signs, as opposed to the usual one (or none), the status quo of limited supply and insane demand isn’t going to reconcile itself. A million dollars may seem extreme, but as we’ve learned, quite a few people still consider living in this city worth every penny.