Last week I had sent out my latest blog on the market stats comparing September 2022 to September 2021.
A friend noticed that, while all other categories of homes experienced a decrease in the average price year over year, the average condo price was still up. Which begged the question, why?
The answer comes down to supply and demand. The number of homes that have been listed for sale is down, which means less supply. However, the demand for these homes is down as well. This is not the case for condos. The number of condos that have been listed for sale is down, but the demand is still up.
With home buying activity noticeably slower, why is the condo activity still fairing well?
When homes become out of reach, unaffordable, then condos are the alternative.
Even though we are at, or close to, par with the 2021 prices of this same period in the previous year, the higher lending rates along with the revised stress test used by lenders, which makes it more difficult to qualify, have put homeownership out of reach for many. However, the lower priced alternative of condo ownership is still within reach. So, this demographic is buying a condo and thus keeping condo demand up.
Many buyers that managed to lock in a pre-qualified mortgage at a rate that is lower than the current rate are also running out of time as these pre-qualifications rarely run longer than 120 days, 90 days with a possibility of a short extension being the norm. If they fail to buy now, they will have to take a much higher rate. These buyers are not buying with haste. They see that the possibility of the market correcting further is mute in comparison to the far lower monthly cost of borrowing that they would capitalize on with their lower pre-qualified rate. Another reason condo demand is still up.
Most of the stress tests that the lenders use have allowances for the maintenance fees. The lower price range also creates a lower loan to value ratio, one more way to get qualified.
There is also a consistent demographic of those that are downsizing. They may be retirees that want to simplify their life, or own a Pied-a-terre as they travel. They may be empty nesters that no longer have a use for a large home, or that just want to free up some of their equity for a summer home or a retirement goal. There is also the investor that would rather put their money into an income producing condo than having it sitting unproductively in a bank or facing unwanted risks in the stock market.
Then there is the pre-construction buyer. In a soft cycle, buying a unit that will not be completed for a few years is a great way to take advantage of the current prices and incentives that the developer is offering to maintain sales momentum, while waiting out the cycle as your money works for you.
The real estate market goes through cycles, it has good years and not so good years, but over a period of many years, the owner does realize an increase in equity as well as keeping up with the momentum of the market. Ownership fairs far better against inflation than having the liquid assets sitting in a bank account. The owner benefits from other perks of ownership such as establishing a strong credit rating, credit history and, best of all, lifestyle ownership. Hence there are still buyers that are keeping the demand up.
The next rate increase and the coming winter holiday season may change that, but December to January is always a very slow time of the year for real estate. That may present a small window of opportunity for anyone looking to make their next purchase.
Whatever your need, I am here to help.
I will keep a watchful eye on the market and I will see to it that you stay informed. Feel free to contact me if you have any questions, I welcome them as they sometimes become great blog topics.
Be Well and Breathe Easy.
Peter Powers
P.S. This link will take you to my current favourite West Toronto (Swansea) and Mississauga (Lakeview community) picks for pre-construction purchases:
