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How the Housing Market Impacts Condos

Posted by Toronto Condo Home on August 3, 2022

Despite demographic trends and increasing demand for condos, the proportion of units produced for sale last year was the lowest in fifty years. This shortfall raises concerns about the housing market’s lack of affordability. Condominiums may provide a valuable alternative to first-time homeownership. They are also suitable for investment and for renting out. That’s why it’s critical to analyze supply and demand in the market and their effects on the housing market.

Condo Supply and Demand Analysis

Housing supply varies constantly. A variety of reasons usually lead people to move: some may want smaller, more affordable housing; others may have growing families and need more space, and others may be looking for their first home.

Similarly, as supply increases, more firms decide to enter the market. As a result, there can be more development and construction of homes. You may find the relationship between the price and the number of houses in demand in this graph.

Condo Supply and Demand Analysis

Different stages of the real estate cycle involve vacancy rates, construction levels, rental rates, and price levels. Vacancy rates drop, rental rates and prices increase, and the construction level begins to catch up during the expansion phase. Although the cycle works if all other factors are held constant except for the price. Market demand will shift if other parameters change.

market demand condo

The demand for homes decreases at each price point when there is a decline in housing demand, as you can see a leftward shift in the demand curve below.

condos for investment

However, we should be aware that increased demand results in higher prices rather than more construction. So, the price elasticity of supply will have an impact on how much rental and sale prices increase.

We should also consider the fact that some people buy condos for investment purposes. The group will be more concerned about price changes than others.

Factors Affecting Condos’ Price

Some factors that will affect housing demand include decreased interest rates or borrowing costs, and natural disasters, in addition to the supply and demand law.

People tend to be more open to taking out loans when interest rates are low. Similarly, they may be able to finance a condo purchase.

When more people are eager to purchase condos, the demand for them rises as a result, which drives up the price. The opposite is also true.

Although, In dense urban regions where planners preserve open space or the historic building stock from (re)development, supply is typically elastic. Therefore, over the past ten years, those areas have seen the fastest increases in housing prices.

There are also some facts about the condo’s price:

  • It is difficult to determine the exact value of a house. Mainly because building new homes or repairing old ones takes a long time.
  • Real estate may be illiquid since it takes a while to sell a house.

How Do Supply and Demand Affect the Housing Market?

Like other assets, real estate is affected by supply and demand. These kinds of markets are known as “competitive markets.” The housing supply is constantly fluctuating. When there is more supply than demand, prices tend to decrease, and vice versa.

When all other variables are the same, consumers will typically pay more to obtain an object (in this case, a house) when there is relative scarcity. Additionally, an oversupply will result in unsold goods. This results in vendors accepting lower prices for their goods.

The market is in equilibrium when the supply and demand graphs meet each other. At this point, there are as many families looking to buy a home as there are available homes for sale. So sellers and buyers can both take advantage of the situation, and neither will be disappointed. A perfectly competitive market is likely to reach equilibrium, according to economists.

Gap Between Condo

Why the Gap Between Condo and House Prices is Narrowing?

The first houses in Toronto preferred condos over other options in 2017 and 2018 due to their cost. As a result of increasing demand, condo prices have increased.

As condominium prices continue to rise, home buyers in the Toronto area have started focusing more on low-rise housing options, which has resulted in a narrowing of the price gap between condos and houses in comparison to different kinds of qualities.

Because of the narrowing price difference, more purchasers are reportedly considering semi-detached homes as an alternative to condominiums, and people are starting to tilt more toward houses where they don’t actually need or want to be a five-minute walk from their downtown office. The main reason is that people prefer low-rise properties.

The price gap between condos and townhouses may sometimes be misrepresented by average sales prices, so when analyzing pricing differences, we should consider the highest and lowest-priced properties. Average townhouse prices in Toronto are significantly affected by the prevalence of cheaper lower-level stacked townhouses.

These apartments are usually compact and underground, which people may not be willing to live in.

Buy A Condo In Today’s Housing Market

A home or condo purchase is risky in any market. Homes are typically the biggest single investment that a person will make in their lifetime; therefore, it’s wise to have a strong financial foundation before making a purchase.

Some pricey markets and other places with significant price increases may see a small decrease in prices, but we shouldn’t expect a crash. So it’s better not to wait and buy a condo based on your budget. Condos can be a wise investment. Owners can also rent out their condos and make some money.

The Housing Market Needs More Condos

There is a possibility that the shrinking gap between condo and house prices happened due to the increased demand for single-family homes and the lack of inventory for them. Considering an increase in single-family home needs, there would be a need for more condos in the real estate market. As condo inventory rises, the price gap between houses and condominiums will widen. As a result, more people would be able to purchase a condo and become property owners. We advise you to consider the tips for buying a condo before purchasing.

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