It’s long been assumed that first-time buyers in the Greater Toronto Area had been relegated to the condo market, but as it turns out they’ve been driving detached housing sales all summer.
According to Fivewalls.com, an online platform that matches buyers and sellers with real estate agents, detached and semi-detached home sales have gone up 23% this summer compared to summer 2018. The thinking has long been that, primarily because of B-20, first-time buyers could only afford condominiums, but Fivewalls’ Freda Lau says detached sales activity was languid for so long that people finally pounced.
“In terms of our customers, their thinking is detached home pricing flattened out, so they have gone for those instead of condos,” said Lau, Fivewalls’ director of operations. “Anything under $1 million, it’s millennials and Gen Xers driving that market. We don’t know if prices will increase because of them, because there’s an expectation in the market that prices are flat and things feel safer, but for the price points under $1m based on the housing affordability calculator, that sits at the price points where millennials can afford detached and semi-detached homes.”
Fivewalls used the Toronto Real Estate Board’s operational area for its analysis, which includes municipalities as far as Hamilton and Milton, far-flung areas where the bulk of first-time buyers are purchasing ground-related homes.
“In our research, we see two-thirds of millennials are willing to move outside of the city, and they define ‘outside of the city’ as anything beyond Toronto, meaning Mississauga, Brampton and Milton,” said Lau. “We expect to see some price appreciation because detached homes and condos in those areas are reasonably priced.”
Between condos, townhomes, semi-detached and detached houses, only the latter depreciated (-1%) since last summer. At 6%, condos appreciated the most.
“When we look at housing affordability, how much income do you need for an entry-level detached home with all expenses included, and assuming someone has a 20% down payment? You need an income of $160,000 for a home priced $900,000,” said Lau.
Konstantin Polyakov, Centum The Pocket Mortgage Inc.’s principal broker, says millennials have entered a critical stage in their income-earning years, lending plausibility to the idea that they can, in fact, afford detached homes.
“They’re hitting over $50,000, $60,000 per head, and as households that puts them over $100,000,” said Polyakov. “They’re maturing and able to qualify for properties of up to $1m, but I haven’t seen many millennials able to qualify for more than that.”
He added that a dearth of competition in the detached and semi-detached segments of the market has created fertile buying conditions for them.
“Those sitting on the sidelines unable to qualify in the exorbitant price ranges finally have a shot because they don’t have to bid against 20 other people and drive the sale price 20-30% over asking,” continued Polyakov. “This is one of the most educated generations in the market right now, and it’s because of the lack of activity that there’s more millennial activity.”
But over the next five years, the GTA alone will see 700,000 millennials enter the housing market, which should leave little doubt they will affect pricing throughout the region. Chances are that won’t bode well for first-time buyers in the near future.