Ironically, The Building Industry and Land Development Association (BILD) announced some very interesting information yesterday, based on recent RealNet data. The full article can be found here.
Of particular note:
“The average price of new townhomes, semi-detached and detached homes in the GTA climbed to a record-setting $811,579, according to RealNet Canada Inc., BILD’s official source for new-home market intelligence… The new average marks an 18-per-cent increase from September 2014 when the price of a new low-rise home was $689,611.”
Wow, low rise houses are up a staggering 18% year-over-year! So, what about the most popular GTA real estate investment of choice – the Toronto area condo?
“The price of a high-rise home in September was $441,156, only slightly different from September 2014 when the average price was$450,014. However the average size of a new high-rise suite was 767 square feet in September, the smallest on record. In September 2005 the average suite size was 925 square feet.”
What the article does not say is that “only slightly different”, actually means that GTA condo prices are actually DOWN 2% year over year! Surprised? Those of who have read my article “Condos or Freehold? Which is the Best Real Estate Investment?” definitely are not. If you missed it, click here to learn more.
Many people mistakenly lump their personal homes as both a place they require for their housing needs, as well as, a real estate investment. Understandably so, given that most have been taught that our homes will likely be the single biggest investment we will likely ever make. However, this “common wisdom” is flawed on so many levels, that go beyond the scope of this article.
Consequently, my analysis is strictly based on these real estate asset classes as “true” investment assets, which may not be applicable to someone looking to buy one of these assets as a principal residence for a variety of reasons that work best for their unique circumstances.
Those of you who may be thinking of dismissing this data as a one off temporary event or blip in the overall direction of the GTA condo market should think again. If you are currently a condo investor or are considering becoming one and your main focus is price appreciation, then perhaps the following RealNet chart will provide you with some further longer term new home price trend insight.
The data indicated in the chart above is less than 2 months old. In a nutshell, new low rise home prices have gone up more than 53% over the last 4 years, and continue to rise, while the most popular and touted high rise condos prices have gone absolutely nowhere over the past 4 years! If anything, they are lower today than they were in 2011.
So what is driving the price of low rise housing? BILD president and CEO Bryan Tuckey “attributes the constraint in supply to a lack of serviced land designated for development of low-rise homes… The rapid growth of prices for low-rise homes is a simple case of supply and demand… Demand for ground-related homes in the GTA is far outpacing supply, and a continuous decline in inventory is fueling the price growth.”
In my article “Condos or Freehold? Which is the Best Real Estate Investment?” (click here to read more), I explained that buildings depreciate (go down) in value, whereas land appreciates (goes up) in value over time.
When you buy a condo unit within a high rise building you are mainly buying and paying for the building area you occupy but only a tiny fraction of the land the condo building is situated on.
Is it really any wonder, that the only thing condo owners and investors can really only be sure of going up over time is their condo maintenance fees!
The BILD article also went on to say that “Prices of new GTA low-rise homes have more than doubled in the last 10 years. The average price in September 2005 was $386,188.”
If you are considering becoming real estate investor or are one already, then you should really consider freehold low rise investments over condo investments. Over time, low rise homes have been proven time and time again to outperform their Condo cousins.
As Mark Twain said – “Buy land, they’re not making it anymore.”