Welcome to urbaneer.com's February 2016 Home of the Month. This feature provides a snapshot of what urbaneer.com's Buyers have recently purchased in the City of Toronto.
If you've been following our monthly 'Home Of The Month' Feature, you'll notice that there has been a significant baby boom occurring in the central core of the city, where young families are seeking downtown freehold properties in proximity to urban amenities. Sure, these Buyers are no longer going out clubbing, but they remain actively engaged with urban life. Often it's because one – or both members of the couple are working in the central core, but it's also for their genuine love for the City of Toronto and its 42 original village neighbourhoods that offer dynamic opportunities that are safe, secure and filled and appealing for families.
One of the reasons the housing market has been booming is that – over the past decade three generations have been collectively moving residences. This is during a time where the greatest transference of wealth between generations is also occurring. We live in an era where there exists an unprecedented and massive transfer of wealth from one generation to others. Basically, many of the Depression-era grandparents who squirreled away their money are bequeathing it to their Baby Boomer children. However, those Baby Boomers don’t always require any money for they, in turn, rode the post-WW2 prosperity wave of their generation all the way to unintended riches. These cohorts are often helping their children or grandchildren enter the market, often with tax-free ‘gift’ capital.
If we look back ten years ago there was a significant shift in the demand for, and supply of, housing for singles. Instead of renting, the creation of small centrally-located affordable condominiums provided ownership opportunities geared to the single income. With younger buyers entering the market sooner, and more men and women purchasing before marriage, a lot of parents began asking themselves why Junior should throw money away paying for rental accommodation when they can help provide the down payment. With the down payment funds happily transferred – with, or without strings – family trusts began ensuring Junior’s monthly costs were, guess what, “just like rent”! This has been a significant factor in the demand which fueled our condominium boom. The size and affluence of this still active local market has been going head-to-head with the international market players who have been investing in the Toronto housing market for just as long, fueling a spike in real estate values.
However, today things are different. This younger demographic have matured into their 30s, influencing yet another rung on the property ladder. For the past little while those singles who bought their small condos have been meeting each other, falling in love, co-habitating (in one of their condos while renting the other), only to find themselves now living in their one bedroom and den condo with a newly arrived bundle of joy. The challenge is that, while owning two small condos lets them keep their feet in the market, these accommodations are both no longer serving their needs nor increasing significantly in value. Why? Because a lot of condominiums have been built over the past two decades – most which were small and geared to first time buyers and investors – resulting in a potential oversupply of ubiquitous small units unsuitable for families. In contrast, with a limited supply of older freehold housing stock (and virtually nil new freehold housing constructed) existing in the original City of Toronto, demand is fueling a faster rate of appreciation.
This is a real challenge: Last year condominium values rose around 3.2%, while the freehold housing market rose 15%. Even if you own two small condos, the rate of escalation for the freehold housing market is significantly more, which means a lot of young families will be shut out of the downtown freehold housing market unless they snap something up quickly. Conversely, with so many couples in the process of divesting themselves of their small condominiums, there's a risk of stagnating demand for their smaller one bed, and one bed and den, units. This is another contributing factor for the flat-lining in values for small condominiums while, by contrast, the freehold market continues to soar in price. We wrote about this in our post called High-Rise/Low-Rise: The Toronto Real Estate Price Gap.
The success of the Toronto real estate market requires the filtering of housing stock up and down the property ladder. As the Millennials meet each other and move towards co-habitation, they often have to sell their two 'first time buyer' suites in order to purchase larger family-friendly accommodations. Basically, the capital they extract from the two sales are funneled towards the down payment and closing costs (including Toronto's horrendous double land transfer taxes) for the larger family-friendly shelter, while the sums of the mortgages held on the two condominiums get combined – and sometimes increased – into a new mortgage on the house purchase. With smaller condominium units downtown commanding values in the $300,000 to $500,000 range, a majority of Millennials – once they've extracted their equity from the sale of their units – find themselves landing in a housing affordability threshold somewhere in the $600,000 to $900,000 range. Herein lies the problem. Comprising a huge segment of the Toronto real estate market, these Millennials are collectively pursuing the same housing product (in location and price point) of which there is a limited supply. With this demand exerting a huge pressure on a constrained market, the result is precedent setting prices. And while it's true prices in Toronto have been escalating since 1995 (except in 2008), the rate of increase and sheer competitiveness to secure property are astonishing. For example, last week one of our listings offered at $589,000 sold for $725,000 with 14 offers.
This is where the Toronto real estate market could go sideways. Along with the potential risk the demand for smaller condominium units could diminish – which could drag down values making it hard for the Millennials to sell their suites, the skyrocketing freehold housing values is also effectively reducing the supply of 600-900k housing product available to them, shutting out their ability to climb the property ladder. If this market segment succumbs to an affordability crisis and stalls, other market segments could also suffer. Remember, a healthy real estate economy needs fluidity in all market segments – meaning we need buyers and sellers trading up and down the property ladder – so if one market gets constrained, it will trickle over and potentially derail others. Along with monitoring how interest rates affect the Toronto real estate market, we need to pay close attention to what's happening to the supply versus demand for smaller condominium units. We addressed this in Urbaneer’s Spring 2015 Toronto Real Estate Forecast Part Two.
These factors impacted the journey of this month's 'Home of the Month' buyers, where our young family had to compete in a tight freehold housing market against their peers – many whom have had help from their families. Pro-actively selling their loft condominium to secure this next long term rung on the property ladder, our Buyers spent some time living with family to squirrel away some extra dollars while looking for the right property. Originally searching in Leslieville, a lot of the properties – which are Victorian and Edwardian working class housing stock – required significant sums of capital to upgrade or, given the demand, were spiking to sums closer to $1million than their preferred budget of $800,000. So when this three bedroom renovated semi-detached dwelling on a wide lot with private drive for 3 cars came to market off The Danforth – just steps to the Greenwood and Coxwell Subway Stations – and, might I add, five blocks to the newest Starbucks location at Danforth and Monarch Park (a sure fire sign of contemporary gentrification in urban centres and an indicator of rising property values as noted in this post Why Starbucks Is The Best Way To Boost Your Home's Value) – our Buyers went into competition against several other Buyers to get this property.
Here's some snaps of the property from the original MLS Listing:
*Images courtesy of Toronto MLS
Listed at $699,000, our Buyers bid 15% over the list price to secure this bucolic sun-filled dwelling.
Congrats to our Buyers on their new Home Sweet Home!
Are you interested in buying on the east side? Here's one of our more popular blogs called Why Toronto’s East Side Real Estate Has Historically Been Cheaper that offers insights into why the east side offers great value and opportunity.
Serving first, second and multi-time buyers, down-scaling Zoomers, renovators and those building their investment property portfolios, our mandate is to help our clients strategically secure the best real estate on offer, while ensuring their purchase best serves their practical needs and their dream of 'Home'. We identify a property's best qualities, features and insouciant charm in the context of the future target market while meeting your own wishes, wants and desires. And although searching for the right property can be an intense and sometimes lengthy process it is, without fail, rewarding both to our clients and the urbaneer team.
If you, or someone you love, has specific real estate needs, wishes and desires, and would enjoy the personalized service of Top Producing boutique Toronto real estate outfit who subscribe to a pressure-free approach – and a specialty in unique urban homes – please know we're here to help at urbaneer.com.
~ Steven and the urbaneer team
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Like what you've read? if you're house-hunting – or just curious to see where values are landing in the City of Toronto, here's Toronto’s Best Houses and Condos of 2015 by Urbaneer which showcases 12 properties our clients purchased this past year! Want to learn more? Consider signing up in the box below to receive our FREE monthly newsletter on housing, culture and design in the City of Toronto. We simply love Toronto real estate!
** Did you also know Steve leads a Student Mentorship and Internship Program for Canadians being educated in the field of housing? Consider visiting our sister site called Houseporn.ca
Buy Of The Month