As most people living in the Greater Toronto Area (GTA) are aware nowadays, the current price of detached houses are above one million dollars on average; an amount well beyond the budget of many first-time buyers living in this city. Thus, condos have become the final draw for people with the dream of being an owner for the first time. However, as the BMO Senior Economist, Sal Guatieri suggests, this trend is soon to be over.

“The typical family in the GTA is priced out of the detached market, with condos the last refuge, and even that won’t last long if prices continue to escalate.” writes Guatieri.

Meanwhile, the benchmark price for a condo in GTA hit $381,500 in December 2016, with an incline of 15.2 per cent in a year, according to the Toronto Real Estate Board (TREB).

Considering that interest rates are on the brink of a rise, even currently affordable condos will soon become too expensive. Many observers have called for the Bank of Canada to stand on the side-lines throughout 2017 by maintaining the key interest rate, which influences mortgage rates, at the current historically low level of 0.5 percent.

Taking into account the various mortgage rules that were announced late last year in order to cool markets and introduce tougher mortgage stress-testing, BMO predicts that resale activity will drop even further and at the same time, the prices will continue to rise.

Previously, the rate of monthly mortgage payments, compared to rent that tenants were paying was not competitive enough for people of average income to consider purchasing instead of leasing a condo. Let’s use some arbitrary numbers in an example to make more sense out of the above hypothesis:

Let’s say, if you were to rent a condo in the North York area, you will pay $2000-$2200 for rent. Mortgages for a typical house in such an area would have cost the owners $1600-$1800 per month, surpassing the condo’s renting price when maintenance fee and taxes are applied. Such price differences have caused people to lose interest in owning a condo.

For quite some time, this price analysis was applicable to many condos in GTA but as the price of detached houses has soared exponentially, affordability has dramatically dropped. This has lead people to move towards condos, subsequently driving the prices up, allowing owners to charge more for rent and making investment and ownership of condos attractive once again.

News source: http://news.buzzbuzzhome.com/2017/01/torontos-condos-may-become-too-costly.html

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