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Hot highrises keep reaching new heights

Bob Finnigan
Toronto Star
November 24, 2007

RealNet reports that new home sales for condos hit five-year peak in October

Looking over my last several columns, I seem to have become pre-occupied with government issues, either reacting to or explaining tax increases such as the "MillerBite" (Toronto land transfer tax) or tax decreases (a very rare subject) such as the federal government's recent GST reduction.

My final comment on these two topics before changing the channel is that the feds giveth and the city taketh away.

This week I turn to the much more interesting topic of the GTA housing market performance with my point of departure being some very fresh statistics from RealNet Canada Inc., BILD's official, independent source of new home market information.

RealNet reports that highrise (condo suites and lofts) new home sales hit a five-year peak in October. Highrise unit sales were up 15% in October and are up 31% through the first 10 months of the year, compared with 2006.

What's even more interesting is the fact that annual highrise sales are on track to edge out lowrise sales for the first time.

Not so long ago, a two-thirds, one-third split between low and highrise sales was considered normal and healthy.

The current ratio sits at 51/49 in favour of highrise, which translates into 19,788 new highrise units sold this year compared with 18,805 lowrise units.

Meanwhile, lowrise new home sales were down in October although year-to-date sales remain on par with 2006. In October 2006, three major site launches in Halton (Milton) pushed that month's numbers way up, while this year we have seen a more balanced monthly sales figure in lowrise.

So, based solely on the strength of the highrise market, total new home sales through the first 10 months of 2007 are up nearly 14% compared with 2006, with the final two months expected to contribute a particularly strong finish to a very good year as sales from those well-hyped downtown condo project openings get reported in November and December.

It's no secret that the highrise condo market is red-hot, and the explanation for it is the same as for the static state of the lowrise market.

In a positive sense, homebuyers are responding to the outstanding design, amenities and tremendous overall value offered in the condo market.

But in the end, it's all about price and affordability.

According to Realnet, the new home price index for lowrise homes currently sits at $426,000 while the highrise price index sits at $333,000. The $93,000 difference between the two markets is what's propelling the highrise condo market to new heights.

The situation we've got is one where some buyers are backing into the condo market based on the much higher cost of lowrise homes, an outcome of the tight lowrise land supply in the Greater Toronto Area.

What's interesting to note is that the highrise price index is not rising as quickly as the lowrise price index - 5.6% year over year compared with 5.9% for lowrise, which confirms my point about land supply.

I suppose the good news is that in either case, these increases are healthy enough to reward investors but not so exuberant as to invite speculation, particularly when transaction costs such as the GST and land transfer tax are taken into account. (Sorry, couldn't resist).

The bottom line is that the news on the GTA market continues to be positive, and we are buying high (rise!)

Posted on Monday, December 17, 2007 at 04:19PM by Registered CommenterElaine in | CommentsPost a Comment

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