How does the residential real estate market work in central Toronto?
It’s easy to assume that the market looks like a bunch of empty Mason jars that are all of the same size, with each jar representing a certain home style in a certain neighbourhood. When it rains, each jar is filled at the same rate. If the water levels represent prices, under this scenario it would appear that prices increase in unison across the board. But this isn’t how the market works because it’s more complicated than that. This is how it works: the empty Mason jars are of all different shapes and sizes and they’re filled by hand with a pitcher – some water goes in this one, then a little water in that one, then some water over there….They’re all getting filled, but not at the same rate. That’s why prices in different neighbourhoods and for different home styles have been increasing at different rates in central Toronto.
Why don’t prices move in unison? Because of the many different neighbourhoods and numerous different styles of homes. When you hear that prices have increased by 5%, it doesn’t necessarily mean that prices in each neighbourhood have increased by 5% or even that prices for each home style within a neighbourhood have increased by 5%. The 5% figure is just an average. It’s possible that prices in some neighbourhoods have gone up and others have gone down. It’s also possible that prices for bungalows in one neighbourhood have increased by 10% and prices for semi-detached homes in that same neighbourhood have only increased by 2%. There are many different factors at play here, but the thing to remember is that it all boils down to supply and demand. At certain times, some neighbourhoods and some home styles may be more in demand than others.
The John Wanless neighbourhood is a perfect example of this (let’s call this the area between Yonge and Avenue and between Lawrence and Old Orchard). At one point in time, people used to live in the bungalows that were in the neighbourhood. Then builders realized they could make decent money by tearing the bungalows down and building new homes. This pushed the price of bungalows up faster than the prices of the two storey semi-detached and detached homes in the neighbourhood. It also led to the disappearance of almost all the bungalows in the neighbourhood. These days, you have almost as much chance of finding a unicorn or a leprechaun in John Wanless as you do of finding a bungalow.
Eventually, the price of bungalows rose to the point where they became almost as expensive as detached, 2-storey homes so builders started buying those to tear down, as well. As a result, both of these types of homes became too expensive for many buyers so they turned their attention to the semi-detached homes in the neighbourhood because they were relatively inexpensive. But that didn’t last for long because the demand for the semi-detached homes caused their prices to increase, too. Then along came the HST. Previously, builders were required to charge GST of 7% on new homes. With the HST, this tax increased to 13% so builders increased their prices to cover the additional tax expense. Get the picture of why prices don’t move in unison? Now combine this picture with similar pictures of what’s been happening in other neighbourhoods across central Toronto and you’ll begin to understand how the market operates.
What’s happening in these neighbourhoods is not unique. It’s happening in neighbourhoods all over central Toronto. Hopefully, knowing how things operate will help you make a better decision if you’re thinking of buying or selling.