Condos Growing in Popularity in Mississauga
No home type has taken more heat than the glossy, urbane high-rise and it looks like, hated though it may be by some segments of the population, the condo is here to stay and will only get more popular.
A recently released Royal LePage House Price Survey indicates that Canada’s residential real estate market saw strong, but slowing year-over-year price growth in the fourth quarter of 2017.
Interestingly enough, two-storey and bungalow home values softened in the GTA and declined (slightly, to be fair) on a quarter-over-quarter basis. That trend hasn’t hit condos, however.
Royal LePage says condominium prices continued to outpace all other property types.
While that might sound unusual, it actually makes sense. While condos are not inexpensive (in the 905 area, they tend to cost buyers about $400,000), they’re significantly more affordable than low-rise (detached, semi and town) homes. Buyers who have been priced out of the low-rise market (detached homes typically cost about $900,000 in the GTA) are turning to condos, effectively driving up demand and, by extension, prices.
The Royal LePage National House Price Composite showed that the price of a home in Canada increased 10.8 per cent year-over-year to $626,042 in the fourth quarter of 2017. When broken down by housing type, the median price of a two-storey home rose 11.1 per cent year-over-year to $741,924, and the median price of a bungalow climbed 7.1 per cent to $522,963.
Over 2017, suburbs such as Oakville, Brampton, Mississauga and Markham saw aggregate price increases of 14.2 per cent, 14.7 per cent, 12.7 per cent and 11.2 per cent year-over-year to $1,105,412, $709,071, $742,200 and $1,063,513, respectively.
During the same period, the median price of a condominium appreciated faster than any other housing type—rising 14.3 per cent to $420,823 on a year-over-year basis.
The survey says this trend was mostly driven by the significant price gains observed in many of the country’s largest condominium markets. In the GTA, the median price of a condo increased 19.5 per cent year-over-year to $476,421.
In Toronto, condo prices grew 19.6 per cent year-over-year to $515,578.
Gone, it seems, are the days of the $200,000 City Centre condo in Mississauga.
“To prospective homeowners in our largest cities, condominiums represent the last bastion of affordability,” said PhilSoper, president and CEO, Royal LePage. “This is especially true for first-time buyers whose purchasing power has been reduced by tightening mortgage regulations.”
In fact, condos were the only market segment to appreciate on a quarter-over-quarter basis, rising 1.1 per cent in the final three months of the year. This is a stark reversal of a long-time trend.
“Historically, condos have appreciated at a slower pace than detached homes, simply because supply constraints are easier to address, building upward uses much less precious land,” says Soper.
“For now, demand for those relatively affordable spots in the sky is so high that the trend has been reversed. As builders respond, new projects will come on-stream and condominium price increases will moderate somewhat. However, without hesitation, we can say Canada is now a condo nation, like other advanced economies around the world.”
The push towards condos might be more pronounced in 2018 following the implementation of the rigorous OSFI stress test—a test that some experts say could eliminate up to 10 per cent of prospective buyers from the housing market entirely.
In late 2017, the Office of the Superintendent of Financial Institutions (OSFI) published the final version of its new mortgage rules, which include a financing stress test for borrowers with uninsured loans, designed to ensure that home purchasers can withstand higher payments if interest rates rise.
Royal LePage says the new measure, which took effect on January 1, will slow the housing market in the first half of the year as some buyers adjust their expectations while others—temporarily, at least—opt out.
“The unsustainably high rates of home price appreciation witnessed in recent years in B.C. and Ontario were dangerous to the stability of not only the housing market, but to the broader economy itself,” said Soper. “Policy measures like the OSFI stress test will quell runaway housing inflation to an extent. However, we do foresee an upswing in demand in the latter portion of the year, as prospective buyers adjust to the new realities. To put it another way, the demand is still there.”
Soper believes demand for more housing will continue to rise.
“In the tug-of-war between a rapidly expanding economy and tough mortgage regulations, the economy wins,” said Soper. “The demand for new housing, be it for purchase or rent, is going nowhere but up.”
Interestingly enough, the demand for more housing—namely more high-rise housing—indicates a sharp change in the real-estate discourse that dominated the early aughts. When condos began exploding in Toronto and Mississauga in the earlier 2000s, some skeptics decried the surge in inventory and predicted that unit prices would crash once the market became “oversaturated” with empty suites.
Now, with condos truly being the last bastion of affordable housing, demand is high as ever and the market is obligated to respond (perhaps with a new take on unit size).
“The future of Canada’s urban centres will rely heavily on getting the housing stock mix right,” said Soper. “As condominiums continue to grow in demand and importance in Canada’s cities, it’s becoming increasingly imperative that real estate developers and policymakers support the creation of housing that addresses demographic trends, particularly as millennials start having children in increasing numbers. This creates a need for larger condominium units that are livable for families. Moreover, the future taxpayer costs of servicing and sustaining sprawling single-family homes in regions like Greater Vancouver and the Greater Toronto Area outweigh those associated with building upwards in our urban centres.”
Royal LePage predicts that the price of a home in Canada will increase 4.9 per cent by the end of 2018.
Perhaps Mississauga has been wise to aggressively pursue more condo construction. It is, it appears, the housing type of the future.
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