For home buyers entering the market for the first time, a common strategy is to start small in a condo and move up to a larger home a few years later, after they’ve saved up, built some equity, and may be benefitting from increased income potential. However, in Canada’s hottest real estate markets such as Toronto and Vancouver, these ambitious homebuyers are experiencing what’s called “buyer gridlock” – the inability to purchase a detached home because prices are rapidly outstripping savings and earnings.
According to the Toronto Real Estate Board’s October Monthly Resale Housing Market Figures
, the average price for a detached, single-family home is now a whopping $1,303,339 in the 416-region – that’s up 21.7% from last year. Even buyers retreating to the suburbs can’t find a price break, with houses in the 905 region still fetching close to a million at an average of $948,191.
This is in addition to recent mortgage rules
, which shrank the affordability of some home buyers; those planning to make a down payment of less than 20% will now be subjected to an affordability stress test, and forced to qualify at the Bank of Canada’s benchmark rate of 4.64% - almost double that of the steeply discounted mortgage rates currently available on the market.
Given these factors, it’s no wonder that buyers seeking more space are turning instead to the townhouse market, which saw 5% growth in Toronto over the past year. They’re still a relatively affordable option at an average price of $687,809, and can offer a more autonomous homeowner experience without the headaches of high-rise living.
However, while townhouses offer buyers a more financially realistic option, owning one isn’t exactly the same as living in fully detached house. It’s important for homeowners to understand the nuances of living in these attached homes, and whether they truly fit their needs.
Know the Difference Between Condo vs. Freehold
There are two main types of townhouses – condo and freehold. Condo townhouses operate similarly to high-rise dwellings; for a monthly condo fee, your complex will be managed by a board, which will handle the financial matters, upkeep and repairs. You’ll only own the interior of your unit, and may have to adhere to strict rules regarding outdoor décor and storage.
A freehold townhouse, however, isn’t part of a condo corporation. While your home is conjoined on one or both sides by your neighbours, you wholly own its exterior. This means you’ll be entirely physically and financially responsible for maintenance and repairs, and your home can look however you see fit. Freehold townhouses tend to be priced more expensively than their condo counterparts, and are generally in higher demand among buyers.
Be Ready for a Bidding War
While townhouses are still more affordable than detached homes, there are considerably fewer of them available in Toronto, compared to the supply of high- and mid-rise condo units. TREB reports only 360 townhouse sales in the 416 this October, compared to 1,896 condos. That means you’ll likely encounter other offers from like-minded millennial buyers, who have also downsized their real estate expectations.
Don’t Count Out Your Condo Options
Depending on the age of your townhouse, its size will range, but most models offer one to two bedrooms. That may not be large enough for some growing families who may turn instead – somewhat ironically – to the condo market, as developers are now focussing on building larger units designed to accommodate families. This is according to the Building Industry and Land Development Association (BILD), which reports the average condo size is now 809 square feet, up from 767 year over year. Stated BILD President Brian Tuckey, “This year we have seen the introduction of larger suites aimed at purchasers who have been priced out of the low-rise market.”
Efforts are also being made at a city infrastructure level, with more schools and daycare slated to open in high-density condo neighbourhoods.
The bottom line:
If you wish to stay within the city, be prepared to trade space for convenience, even among your real estate move-up options.
Penelope Graham is a managing editor at Zoocasa, a real estate brokerage based in Toronto.
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