Recently, TD Economics of the Toronto-Dominion Bank released a report outlining their analysis of the Greater Toronto Area’s (GTA) housing market. The report states that single detached homes are the “hottest” commodity, while the new condo market is expected to “cool” over the next couple years.

Detached homes in the GTA

According to TD, the demand for detached housing is very strong, and inventory levels are low. In the resale market, this combination has been leading to intense bidding wars.

In 2013, around 43,000 detached homes were sold in the resale market, and only 9,900 were newly constructed. Over 10 years ago, back in 2002, the GTA saw as much as 22,000 new detached homes built.

Strong demand and lack of inventory equals higher prices. As of January 2014, the average price for a detached home in the GTA was $718,000, a year-over-year increase of 12%. Even though the average price is already so high, TD believes that it will continue to grow by 2% and 3% throughout 2014 and 2015.

Condos in the GTA

Since 2011, high-rise condos have made up 60% of the new home supply in the GTA, and according to TD, low-rise condo units are in short supply. 70,000 high-rise units are expected to be completed over 2014 and 2015 (twice the historical average), and the majority of the units have sold. George Carras, President of RealNet Canada, believes that the surge in new condos is partly to make up for the lack of new detached housing.

TD stated that approximately 26% of condos in the GTA are purchased for rental purposes; there are two reasons why a great deal of investors concerns TD: 1) What happens if the majority of the investors sell upon completion? 2) Very easy for investors to flee the market in trying economic times.

TD believes that the shrinking average condo size is evidence that the new condo market is directed at investors. 2005 is when the average condo size peaked at 925 square feet. As of January 2014, the average condo size (under construction) was 798 square feet.

Apparently, new condos are having a hard time competing with resale condos. TD’s report states that resale units are generally larger and cheaper than your average new condo, and supply is keeping up with demand. This leads TD to believe that condo prices may fall on average 4% a year over 2014 and 2015.

What’s next for the GTA housing market?

When it comes to the new housing market, we have to agree with Carras. While the demand for detached living has stayed strong, so has the demand for condo living. As the construction of new detached homes decreases, we’re seeing more new condos hit the market. We can attribute this new housing trend to “recent changes in government land regulation and a lack of available infrastructure” like TD does in their report, but it’s also something deeper than that. The GTA is in the midst of a generational shift. All the Millenials and other people living in the downtown core who are beginning to think about raising a family don’t want to leave their neighbourhood. The new home market is experiencing a transition from catering to investors, singles, and couples with smaller units to designing larger units and amenity packed buildings for small families.

This kind of transition isn't going to happen over night. The new home market will fluctuate like it always does, and those looking to buy should do so when they can afford it and when they find their dream home.