With a wedding planned for next March, Ronny Kofman and Erin Buchwalter decided to look for their first home.
But reality quickly set in when they realized the dream of a newly renovated detached house in midtown Toronto didn't exist. At least not within their $450,000 budget. So two weeks ago the young couple – both are 26 – decided to look at condominiums instead.
"We didn't want to end up drowning in mortgage costs during our first few years of marriage," says Kofman. "We had to be a lot more realistic."
Kofman and Buchwalter are representative of a significant trend that has physically changed the landscape and in turn, the culture of the city. Growing numbers of first-time buyers, young couples and families priced out of the low-rise market are turning to condos.
The Toronto area has 249 projects currently being marketed or in the construction stage, representing 58,000 units, making the city the largest condo site in North America, according to consulting research firm Urbanation. And this year is a watershed year: for the first time, condos will likely outsell low-rise homes with a greater than 50 per cent market share.
"Condominiums are clearly the answer to the skyrocketing cost of land and shelter that has all but eradicated the dream of home ownership for many first-time buyers," says Michael Polzler, Re/Max Ontario-Atlantic Canada executive vice-president.
In September alone, six of every 10 new homes sold in the Toronto area were condominiums, on track for an all-time sales record in 2007. From January to the end of September 38,982 condos had sold. Meanwhile, sales of existing townhome and apartment condominiums are already up by 14 per cent in the Toronto area in the first 10 months of the year compared with the same period in 2006, says a report released yesterday by Re/Max.
Rising prices for detached homes, which can be well north of the half-million mark in the central core are moving first-time buyers into condominium living, says Jane Renwick, executive vice-president of Urbanation. In order to make the city more family friendly, the city of Toronto has pushed developers to create more green space and amenities downtown. Some have also begun building larger units.
So far retailers have been among the first to respond with an estimated 13 new grocery stores planned for the downtown area. And typical suburban big box stores such as Best Buy and Canadian Tire have already moved into the city.
"Industry insiders never thought they'd see the day when sales of highrise condo suites outsold low-rise new homes sales, but that day may be just around the corner," says Building Industry and Land Development association president Bob Finnigan in a report. "The affordability crunch has driven more and more first-time buyers into condos just to get a toehold in the market."
Highrise market share for new condos has moved from 27 per cent in the early 2001, to one third of the market in 2004, to more than 40 per cent in 2006 and a projected 50 per cent-plus this year.
In Toronto, lineups at developments have become commonplace with condominium units priced in the $200,000 to $300,000 range being the most popular. New developments are averaging $450 per square foot, according to Re/Max.
Cathy and Robert Ainsley say they initially never thought of buying a condo because they wanted a backyard for their 1-year-old son. But they downgraded their expectations when they started looking for a home last year.
"It's a bit of a sacrifice, because you don't have the space, but at least we have something we can call our own," says Cathy Ainsley, who moved into a two-bedroom unit beside Scarborough Town Centre this year. Being near the subway line the couple says they have also been able to forego a car and save money. "We call that our house fund," she says.
Kofman meanwhile, says he and his fiancée have looked at about 10 condos so far, compared to about 25 homes. Even when they considered pushing their budget up by $100,000 to more than half a million, it was difficult to find anything they could afford, Kofman says.
"It was becoming stressful. And a lot of the homes needed work," he says. "I guess you can't expect to get the dream home on the first try." They will likely live in a condo until they can afford a house, he says.
While most economists feel the condo market will still appreciate moderately by 4.4 per cent at the end of this year and another 2.8 per cent next year, some economists have warned the market is overbuilt, with signs of potential froth.
Re/Max says "investors have also jumped into the fray, now representing a sizable segment of the downtown market" with a significant 60 to 85 per cent of sales in new condominium developments involving investors this year, up from below 50 per cent last year.
Demand by investors can create a frenzy when projects open, driving prices up. However, if the economy becomes soft they are usually the first to exit, driving down prices. Lineups at condo sites in the Toronto area are reminiscent of the mob scenes in the late '80s, before the market crashed.
Some economists have cautioned that too many investors already exist in the market, driving up prices that could force a nasty correction in the future. Some of that frothiness is credited to the strength in Bay St., where the Toronto Stock Exchange is at record levels.
As a result, the upper end of the market continues to thrive, with 126 sales of existing condos over $1 million reported in the Toronto area, almost double the figure of a year ago. But analysts say the market could hit a wall if bonuses on the street dry up as the economy is affected by any U.S. downturn.
"Evidence is mounting that the high dollar and commodity prices are hurting the GTA economy and much more significantly than other areas of Canada," says housing economist Will Dunning.
Meanwhile, affordability is becoming an issue for condo buyers as well. According to Renwick, the qualifying income to afford a typical 700-square-foot condo in Toronto between 2001 and 2005 remained flat at $54,000 to $57,000. But since the end of 2005, prices and mortgage rates have risen and it now takes an income of $70,000 to afford the same unit in the second quarter of this year, she says.
Renwick, meanwhile, is quick to point out that the popularity of condos is not simply because of affordability. Condos have become a lifestyle choice for some, and popular with baby boomers, she says.
Surprisingly, the top performer in sales nationwide according to Re/Max is not a western province, but Kitchener-Waterloo, where limited inventory levels are driving demand in the university and technology town. The area saw a 59 per cent spike in sales for the first 10 months of the year, with the highest priced condominium at $670,000 – a record for the city.
Still, no other Canadian city has embraced the condominium lifestyle like Vancouver, where 60 per cent of all MLS sales are condos.
With average home prices nearing $600,000, condo sales are strongly tied to affordability. Vancouver sold 453 million-dollar townhomes and condos, up 49 per cent from a year ago and a figure more than three times that of Toronto.
This year, a 7,400-square-foot penthouse at the private residences at the Hotel Georgia sold for $18 million – likely a Canadian record. Former Bank of Montreal CEO Tony Comper is believed to have paid $15 million for his yet-to-be-occupied penthouse suite at 1 St. Thomas in Toronto.
