Is 2018 the year to trade your condo for a detached home?

Is 2018 the year to trade your condo for a detached home?

In the past year detached home prices have drifted downward in Toronto and Vancouver while condo prices have surged, so the price gap between the two has narrowed. At the end of this article we explain our belief that now may be the best time to trade in your condo or townhome for a detached home.

The market for detached homes

The benchmark price of detached single-family homes in Toronto and Vancouver has been declining recently.

Toronto house prices have been dropping consistently since their peak of $975,000 in June 2017.

Vancouver house prices dropped for 5 months in 2016 after the foreign-buyer tax was implemented, bounced back to reach a peak of $1.6 million in July 2017, but have flattened out since then.

The market for condos

Condos had an amazing 2017 with benchmark prices rising 22% in Toronto and 26% in Vancouver.

The benchmark price for a Toronto condo in Dec 2016 was $384 thousand and by the end of 2017 that figure has reached $468 thousand. That’s an $84 thousand gain in 1 year!

If you thought Toronto was spectacular, a Vancouver condo worth $520 thousand at the end of 2016, was worth $655 thousand at the end of December. That’s a rise of $135 thousand dollars!!

In other words, a person who bought a Vancouver condo and sat at home watching TV would make 70% more than an individual who rented their home and earned the $79,930 median household income for a Metro Vancouverite.

Can condo prices continue like this?

It seems unlikely that condo prices can continue at this pace.

If Toronto condo prices continued to rise at 22%, they would reach $570 thousand by the end of 2018, a $110 thousand price increase. The new government stress tests that came into force January 1st reduce the maximum mortgage that the median household can get from $381 thousand to $311 thousand.

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The price increase of $110 thousand combined with the mortgage reduction of $70 thousand means someone who postponed buying a home in 2017 would have to save an additional $180 thousand down payment to purchase the average condo at the end of 2018 if prices continue to climb. The median Toronto household only earns $78,280 before taxes so that kind of aggressive savings is impossible unless baby boomer parents gift that sum to their kids.

Similarly, a repeat of the 26% condo price gains in Vancouver would bring the benchmark price to $825 thousand but under the new stress test, the median household will qualify for a maximum mortgage of $319 thousand. So…how would a family save a down payment of $505 thousand!?

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Time to trade-up

The gap between detached home and condo prices have narrowed as a result of the tremendous condo price gains, so a condo owner looking to upgrade to a detached home is in a better position today than they were a year ago.

In Toronto the gap between the price of a condo and a detached home narrowed by $124 thousand.

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In Vancouver the gap has narrowed by a more modest $57 thousand.

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If you believe the market for both property types will flatten out but is unlikely to fall and you can qualify to trade-up to a detached home, 2018 may be the best year to do it. Most forecasts for Toronto and Vancouver anticipate that detached homes will stay flat or drop in 2018 while condo prices are expected to continue to rally. Take advantage of the condo price rally because it is unlikely to continue beyond 2018.


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