The hot spot for new homes in 2021 is… the suburbs

I have spent a lot of time working on consulting and price valuations for new condo projects in the suburbs over the last couple of years, with activity picking up considerably in 2020. I recently worked on projects in the typical high-density areas of Markham, Vaughan, Richmond Hill and Mississauga, but also King City, Newmarket, Aurora, Innisfil, Ajax and Clarington, to name a few. My clients have been looking in these markets, because the suburban condo markets are hot!

For the first time ever, the suburbs – or 905 region – represented more sales than 416 (the amalgamated City of Toronto). Slightly more than half (51 per cent) of all new condominium sales in 2020 were in the 905, according to data-tracking firm Urbanation Inc. Toronto new condo sales declined by 38 per cent to a 15-year low. Additionally, the unsold inventory of new condos in the 905 was down 12 per cent to about 4.8 months of supply, indicating very strong demand. On the flip side, the unsold inventory of new condos in Toronto rose 1.4 per cent to about 13.5 months of supply – a balanced market.

More flexibility

Why is this happening? Employees have been given much more flexibility when it comes to where they need to live, as working from home becomes the norm. Living just outside Toronto gives buyers the convenience of being close enough to the big city, while reaping the rewards of much more affordable prices. The average selling price for new condominiums in the 905 area in 2020 was $925 per sq. ft. (psf) – much lower than in Toronto at $1,227 psf. Government-mandated lockdowns and stay-at-home orders have eliminated many of Toronto’s best-selling features, such as popular restaurants and entertainment options. Toronto’s loss was the 905’s gain – the increased demand and limited supply caused the average selling price of new condos in the 905 region to increase by nearly 17 per cent last year.

Even in the middle of an unprecedented pandemic, the overall real estate market remains strong, as the number of new homes sold overall in 2020 increased by five per cent. The year saw a sharp increase in the demand for new single-family homes, with sales up 81 per cent, according to the Altus Group (25 per cent above the 10-year average). Condo sales were down in 2020 compared to the previous year, despite the boom in the 905 condo market. With just an average second quarter, condo sales would have been close to the fifth highest year on record, but as you know, we had an interruption during those months. The lack of sales in Q2 2020 was due to developers not launching, and sales offices closing due to COVID-19.

You might have read this analysis and concluded that the 905 is hot, but there must be some deals somewhere. I’m not sure that’s the case. At the end of last year, unsold new home inventory dropped to its lowest level since March 2018 (single-family and condos combined). A healthy market should have about 12 months’ worth of inventory – the current market has just four months. The low inventory led to an all-time high for benchmark pricing in December 2020. The average unsold price for new condominiums increased 11.9 per cent over the last 12 months, while the average unsold price for new single-family homes was up 21.4 per cent.

Choosing real estate

It is really hard to wrap your head around all the factors impacting the market; low interest rates are clearly a driver, the desire for a larger property because of working from home, and teaching from home is clearly pushing young families to alter their buying habits. It is clear that many investors are saving more; less money spent on gas while commuting, less money spent on vacations, less money spent dining out, less money spent on live sports, concerts and movies, and more cash to invest. The data suggests that they are choosing real estate.

Before you jump on the bandwagon and buy in 2021, contact an experienced real estate professional, talk to a mortgage broker, and do a lot of your own research. Good luck.