Don’t worry, it’s still a good time to buy a new home in Toronto

As we watch house prices continue to climb and climb, it’s natural to think about the old truism that what goes up must come down. In the real estate market, that tends to be true only temporarily — what goes up comes down a bit for a while before climbing again to new heights. That said, it is still a good time to buy a new home in Toronto.

I had breakfast today with a friend who purchased her suburban detached in the midst of the 2008-09 economic crisis for $350,000, then had it reappraised only a few months later for nearly half a million, refinanced her barely-wet mortgage and paid off a line of credit. Smart (The same house is now worth closer to three-quarters of a million). Take that same house further west into the city proper, and the story is the same, but the digits are considerably larger.

Rising home prices have driven many a buyer (especially first-timers) to the condo market, which has remained, at least by comparison, affordable in Toronto. There are still a few projects out there into which you can buy at pre-construction prices for about $200,000.

Many of us have been watching and waiting for the same price hikes to hit the condo market for the last couple of years, and they are indeed climbing. While still affordable compared to a single-family home, densification and a lack of developable land in the city mean that even new condominiums are becoming exponentially pricier, averaging in the mid $400,000s according to the Building Industry and Land Development Association’s (BILD) May 2016 figures.

But the market will eventually level out, just like it always does. According to a recent report by the Canada Mortgage and Housing Corporation (CMHC), nearly 80% of condo projects in Toronto had reached pre-construction sales of 70% before breaking ground, so overbuilding isn’t an issue. It looks like prices may continue to climb for a little while longer.

While noting that “future inventory management will be critical,” CMHC principal market analyst Dana Senagama said, “Condo building activity in Toronto seems to be well managed.” There are, noted the report, pockets of unsold inventory in the city centre and in Markham.

Unlike the bubble created by speculative investment in the 1980s, which triggered an artificial increase in demand, which in turn spurred developers to build more units, today’s condominium market has more stability.

With nearly 44,000 units under construction in Toronto in the first quarter of the year, only 1,373 were completed and unsold, according to CMHC. The unsold inventory today is concentrated in just 10% of projects; the average unabsorbed rate for the remaining 90% is just 4%.

“In general, our research shows that the majority of builders wait until a higher sales threshold is reached prior to commencing construction, thus mitigating risks associated with speculative building,” explains CMHC. “A tight resale condo market and strong rental demand have helped to absorb some of the completed and unsold units. The current inventory level is low compared to the highs witnessed during the early 1990s and has eased from a slight increase in 2015.”

Obviously, the best advice you’ll get about any real estate purchase is the simplest: don’t buy more than you can afford. Don’t be fooled by negative headlines - it’s still a good time to buy a new home in Toronto. You can ride out a price dip provided you can afford the payments, and real estate prices have never not come back. As long as you aren’t forced to sell, a paper loss stays on paper.