Samantha Cooper is looking to buy her first home — but she doesn’t want a shoebox condo.
The 28-year-old has been living with her parents in Etobicoke to save up for her first home and now has a sizable deposit. She wants a condo with one to two bedrooms and one and a half bathrooms, and has been home hunting on and off over the last year, but interest rates have been too high to get into the type of home she wants.
She’s waiting for the Bank of Canada to bring its key interest rate below 3.5 per cent — it’s currently 3.75 per cent — but is feeling the pressure to buy before the spring market, when experts say there’s likely to be heated competition.
The “nice, bigger condos” on the market already have multiple offers, she said, but “the smaller units sitting on the market really aren’t nice for first-time buyers.”
It’s a dilemma many first-time homebuyers are finding themselves in, real estate experts say. Having been able to save for longer by renting or living at home, they’re hoping to skip the first step on the property ladder but have run up against limited inventory for larger entry-level homes and looming competition.
First-time homebuyers are motivated to buy property before the spring 2025 market, which is forecast to bring back bidding wars, offers with no conditions, and escalating prices. Condos are typically entry-level homes and there’s a significant level of inventory but for many first-time buyers it’s the wrong supply. The majority of the thousands of units on the market were built with investors in mind to rent out, as smaller units generate better cash flow.
While larger condos have traditionally been a tough sell due to the price tag, first-time homebuyers renting or living with parents for longer have been able to save up to compete for the limited number of two- or three-bedroom condo units in Toronto, or to buy entry-level single-family homes typically further outside of the city.
“Interest rates need to be lower and the inventory needs to be more enticing,” said Grace Chan, a Toronto real estate agent with Forest Hill Real Estate. “There’s been no movement with condos.”
The Bank of Canada has had four consecutive rate cuts since June, bringing the key interest rate from 5 per cent to 3.75 per cent — with another 0.25 or 0.5 percentage-point drop likely occurring in December. While the average selling price for all property types in the GTA has dropped by 15 per cent since the February 2022 peak, it’s still 38 per cent above 2019 levels.
“Affordability is still such a big obstacle for first-time homebuyers,” Chan said. “Rents are also dropping and there’s a lot of rental supply on the market, so (first-time buyers) have options,” adding that many are choosing to rent, save and then buy.
Young professionals living in the downtown core with a household income of $100,000 or more who are paying less than $2,500 in rent a month for a one-bedroom are renting for longer, “socking away money” to save up for a down payment for a bigger property, Chan added.
Ten years ago small condo units were enticing for first-time buyers, costing around $390,000 in Toronto. Now the average cost is $720,000, according to the Toronto Regional Real Estate Board (TRREB). Forking out such a large payment for small units isn’t appealing for those looking to enter the market, experts say.
“Prices haven’t budged too much since the 2022 peak,” Chan said, “and anything in $800,000 range is OK; it’s subpar.”
The two- and three-bedroom condos are getting snatched up, said Jarrod Armstrong, a sales representative at Armstrong Team.
“This segment of the condo market is much tighter,” he said, “depending on the building and location.” But the vast majority of listings are 600 square feet or less, and anything that’s 800 square feet or more is selling within a “reasonable amount of time,” he added.
Spencer Fram, 29, is looking to buy his first property after renting a condo in Liberty Village for many years.
Part of the motivation for buying now, Fram feels, is that the market has bottomed out and he doesn’t see much more relief in terms of prices falling or interest rates dropping significantly more before the spring market arrives. He also fears the Bank of Canada may increase interest rates next year, if a tumultuous political landscape causes inflation to rise.
In Toronto, Fram is able to afford to buy a one-bedroom, one-bathroom condo, which while close to work is a space he’ll outgrow quickly. He’s also looking at less expensive freehold properties in Hamilton, but the commute to his work in downtown Toronto would cost him more than three hours a day.
“There’s weighing the pros and cons when deciding to move out of the city or staying in the city, that I’m evaluating,” Fram said. “But the more (condo) viewings I see — do I really want to put a large chunk of my life savings in a small box in the sky? Do I want to buy this product?”
That’s why some first-time buyers hold out for a single-family home, skipping the condo purchase entirely.
Entry-level freehold homes priced in the $1 million to $1.4 million range are becoming competitive, with many attracting multiple bids, said Erica Reddy-Choquette, broker of record with Royal LePage Signature Realty.
There simply isn’t enough supply of the single-family homes below $1.5 million, she said, making this home type a hot commodity.
And recent federal government changes to mortgage rules could stoke greater competition among first-time buyers looking at entry-level single-family homes.
First-time homebuyers will be able to extend their amortization — the length of time it takes to pay off a mortgage — to 30 years instead of the standard 25 years. They can also provide less than 20 cent as a down payment for a home costing up to $1.5 million, while the previous threshold was $1 million. The new rule changes are set to take effect Dec. 15.
Experts say it allows first-time buyers in expensive markets like Toronto a leg up when qualifying for a home, but there are also fears increased competition could raise home prices, while saddling buyers with greater debt for a longer period of time.
Cooper said that while the new mortgage rules could help some first-time buyers entering the market, when she negotiates her mortgage with the lender she’ll stick to the traditional 25-year amortization in hopes of being mortgage-free in her 60s.
“I want to keep my mortgage as short as possible,” Cooper said.
