Are we witnessing the death of the starter home?

Just when you thought it was impossible, the Toronto housing market hit yet another record-breaking month in April. Inventory hit an all-time low and prices hit an all-time high, says the latest from the Building Industry and Land Development Association (BILD).

Inventory of new detached, semi-detached and townhomes was a mere 2,751 on April 30th, compared to nearly twice as many — 5,171 — a year ago. The price of an average low-rise in the GTA hit $864,181, up 11% in a year; detached homes hit $1.05 million+.

BILD chalks the limited availability of serviced developable land for the lack of low-rise homes; consequently, sales of low-rise homes were down 14% from last year, at 2,324; of those, two-thirds were in Peel and York regions.

Detached sales represent about half of the low-rise homes sold. In the GTA, more than three-quarters of the new homes available are in high-rises; as of the end of April, 87% of all the new homes in builder inventory in the GTA were condos.

Because of the lack of supply, the lowest since 2003 in Vancouver and Toronto, the Canadian Real Estate Association (CREA) is saying the tightness of the market is becoming self-enforcing. Every decision to sell becomes a decision to buy, and as we know, competition is fierce. You may do well selling your home, but how would you fare in a bidding war on your new home? Sales activity, says CREA as well as Scotiabank, may be topping out.

A couple of scenarios can result. One is a push outwards; you sell your home in Toronto and make a whopping profit, then capitalize on it by buying another home in, say, Brampton; Brampton prices skyrocket, but if you sell there, just how far are you willing to go?

Sales in Fraser Valley in B.C. increased 26% in April. In Hamilton west of Toronto, prices were up 16%, and in Niagara/Fort Erie, they experienced a 20% increase, so apparently the answer is “pretty far.”

Another possible scenario is the death of the starter home. It used to be that, when you were young and idealistic, you bought whatever you could afford, confident that you would one day cash in on your home’s appreciation and buy up. These days, it may make more sense to stay put and renovate to meet your evolving needs. When people aren’t moving up, of course, they aren’t moving out and that only contributes to the scarcity of available properties.

Seems that when you’re living in one of the country’s most sought-after markets, “gridlock” may not apply just to traffic.

According to a commentary released by TD bank last week, when you factor in the costs of selling including commissions, legal fees and the move itself, staying put makes better financial sense. Renovation activity has shot up, particularly in detached homes compared to condos, with the result that what would once have been a starter home is now a trade-up.

In Britain in April, a bill in the House of Lords was defeated that would have meant one in five properties in all new developments would be available to first-time buyers under 40 at a 20% discount.

It’s not exactly what we think of when we talk about “affordable housing,” when only middle or higher income earners would qualify to purchase them, at a cost to public money that would have been earmarked for housing for lower-income families. In spite of its defeat, one backer of the bill asserted that “… our manifesto commitment to introduce starter homes at a 20 percent discount for first-time buyers is unwavering.”  (I guess if you’re a would-be first-timer who already hit 40, you’re plain outta luck.)

Frankly, with their major housing markets as overheated as ours, it’s hard to fathom putting the onus on the government to make homeownership happen. We could have kept prices down ourselves if we hadn’t succumbed to the fever of the bidding war. I’m tempted to launch into a tirade about the lack of community focus at this point — as long as I get mine, to heck with the greater good — but I should really wrap it up.

Fact is, I don’t have answers this week. Just more questions. Are we witnessing the death of the starter home? What will the trickle-down effect be on ownership? Fewer homeowners? More reasonable prices? A thriving condo kingdom where detached homes are just for the super-rich? What, if anything, is the government’s role in helping people buy homes?

Stay tuned and we’ll all find out.