A Toronto condo slowdown is rocking the city. Once characterized by relentless price growth and surging sales activity, is currently undergoing a period of recalibration. Spring 2024 has brought a noticeable slowdown in condo sales, prompting both challenges and new opportunities for buyers in the market. This blog dissects the factors contributing to the slowdown and what it means for buyers, sellers, and investors.

Current Market Conditions

March 2024 figures from the Toronto Regional Real Estate Board (TRREB) show that the average home price experienced a slight year-over-year increase of 1.2%, reaching $1,121,615. However, the condo market tells a different story, with average prices declining by 0.5% compared to the same period last year. Let’s delve into why this divergence is occurring.

Understanding the Toronto Condo Slowdown

Several significant factors are shaping the Toronto condo slowdown:

• Elevated Supply: After several years of robust demand, the year 2023 witnessed a remarkable surge in condo completions. Approximately 16,242 units entered the market, significantly exceeding typical annual figures. This influx of new inventory was fueled by projects developers initiated during the previous boom period. New condo listings in the GTA were up 28.8% year-over-year in Q3 2023, far outpacing the 6.2% increase in sales.  This increased supply has given buyers more negotiating power and put downward pressure on prices.
• Affordability Challenges: The economic climate is a major force in the current market. With the Bank of Canada overnight rate holding at 5%, and the average five-year fixed mortgage rate standing at 4.74% in April 2024, affordability has taken a substantial hit. These higher borrowing costs curb the purchasing power of many potential buyers.
• Shifting Investor Landscape: Many investors who purchased pre-construction condos are now facing monthly losses due to rapidly rising interest rates. In Q1 2023, investors were losing over $400 per month on average. If these negative cash flows persist, there are concerns investors may sell sooner than planned, potentially flooding the market with more supply.
• Potential Oversupply in Downtown Toronto: There are record levels of condo construction underway in the GTA, particularly in downtown Toronto where there is still plenty of undeveloped land. As more units come to market, it could put further downward pressure on prices.

Condo Sales Drop: A Detailed Look

The Toronto Condo Slowdown impact is reflected in these concrete figures:

• Condo sales in the GTA have decreased by 12.8% year-to-date compared to the same period in 2023.
• The Months of Inventory (MOI) for condos is currently at 3.2 months, signalling a market favouring buyers.
• The Sales-to-New-Listings Ratio (SNLR) stands below 40% at approximately 35%, confirming the shift towards a buyer’s market.

Buyer Preferences and Lifestyle Changes

The pandemic catalyzed a change in housing priorities for many individuals. Coupled with economic pressures and the growing prevalence of flexible work arrangements, homebuyers are reconsidering their needs. Increasingly, buyers are choosing more affordable and spacious properties in suburban areas surrounding Toronto, sacrificing proximity to the city centre for a different lifestyle.

Toronto Condo Slowdown: Developer Responses and Project Delays

Faced with reduced demand, developers are forced to re-evaluate their strategies. According to recent data from Urbanation, a significant number of condominium projects in the Greater Toronto Area (GTA) have been put on hold due to the current economic climate. Specifically, 40 condo projects that were set to launch have been postponed as developers struggle with elevated interest rates and heightened market uncertainty.

The combination of higher borrowing costs and a softening housing market has led many developers to reassess their plans and timelines. CIBC economists have warned that the Canadian housing market is approaching “recessionary territory,” with the condo sector facing notable challenges. The Toronto condo slowdown is a stark contrast to the peak of the market in early 2021, when unit sales reached 64,000. As of late 2023, sales have declined by 45% and are now 12% below the pre-pandemic decade-average level.

When considered on a per capita basis, condo sales activity is at lows not seen since the 2008 recession, outside of the early Covid lockdowns. 

The iconic “The One” condo project at Yonge and Bloor in Toronto serves as a high-profile example of the difficulties faced by developers. The project has encountered numerous delays, cost overruns, and a failed deal with Apple for a flagship store, ultimately leading to the project being placed into receivership with $1.6 billion in unpaid debt

Despite these challenges, some experts believe that the Toronto condo market could tighten in the second half of 2024 as the GTA population continues to grow at a record pace and there is an expectation of some relief in borrowing costs.5 However, the current market conditions have undoubtedly forced many developers to put their projects on hold as they navigate the uncertain landscape.

Government Interventions

Policymakers are also taking note of the market shifts. Measures like Toronto city council’s approval of multiplexes across all neighborhoods are aimed at increasing housing supply and promoting affordability. Furthermore, taxes targeted at speculation, such as the foreign buyer’s tax and vacant home tax, aim to discourage practices that may artificially inflate prices and reduce accessible housing stock.