You can now buy a penthouse in Toronto for under $700,000

Talk of the Toronto housing market used to revolve around exorbitant prices and inaccessibility. But then COVID happened. Within months, we saw a dramatic decline in downtown condo prices, turning the market into one that favours buyers. Although GTA condos are up 5% over the past 12 months, one segment that hasn’t fared quite as well are penthouse suites. They’re down by almost 7% from the same time last year.

Why the sudden change?

So you might be wondering -- what accounts for this contradiction? For the most part, penthouse prices are down because buyers have been moved by the pandemic to adjust their values and priorities when it comes to purchasing a home.

With a steep (more than 100%) increase in condo inventory in the GTA last year, condo buyers had more than their fair share of choice. Some of the newly available inventory happened to include units comparable to penthouses — only on lower floors and therefore offering better value.

The result of this was twofold: Fewer penthouses were sold in 2020 than in 2019, and their prices depreciated.

Consistent with these lower penthouse values is waning interest in the luxury condo market. All those headlines about job loss and an economy in decline have moved buyers to a more frugal mindset. Great value is in style now. Luxury is out.

What about the prestige?

Yes, some buyers are still tempted by the ‘prestige’ associated with owning a penthouse. However, with the pandemic throwing a wrench in so many parts of the equation — personal finances, the condo market, and the economy at large — spending more for status (and a good view) isn’t worth it for many buyers, especially when taking into consideration the potential risk of a condo market decline.

Between shifting values and the fact that many buyers think condo prices still have lower to go, it’s no wonder the trend is to opt for value over excess. The numbers certainly reflect this movement, penthouses taking an average of 19 days on market to sell in 2019, and 26 in 2020.

Even with prices coming down — the number of penthouse units sold under $700k dropping from 556 in 2019 to 517 in 2020 — fewer buyers are interested in shelling out more money for a penthouse, while more are getting excited over a good bargain.

In contrast, those who are comfortable going up a notch in terms of price can now afford a ‘luxury’ condo. Not only have prices come down in general, but any time the economy suffers the luxury market tends to get hit the hardest, as was the case in both 2008 and now in 2020.

What counts as luxury, anyway?

There is nothing etched in stone. However most agents at Strata.ca define luxury as a condo that successfully sells at least $200 more per-square-foot than a nearby condo in the neighbourhood. Typically it would also have to cost at least $700,000. But location also factors into the equation: The farther from downtown, the lower a luxury unit might cost.

That said, the definition of luxury is definitely fluid. For some, $200 or more per square foot over its neighbour simply doesn’t cut it. This group might feel ‘luxury’ has more to do with the overall ambiance of a building, and especially its amenities. They would most likely restrict their search for a luxury condo to an exclusive neighbourhood like Yorkville, or perhaps residential units found within 5-star hotels.

What next?

Post-pandemic, the luxury market will almost certainly spring back. Prices for GTA condos have been creeping back up since their lowest low in late October 2020, and luxury condos will undoubtedly follow suit.

Moving into 2021 we can expect to see a couple of things: Less condo inventory than we had in 2020, historically low mortgage rates, and more Torontonians getting vaccinated. And all of those taken together means there’s no real reason the condo market shouldn’t experience a swift recovery.