Introduction: A Slowdown in Toronto’s Condo Market

In Toronto real estate, the condo market is experiencing a slowdown in Toronto’s condo market as significant transformation. 2023-2024 has marked a period of adjustment, influenced by a series of economic and regulatory changes. As we delve into the intricacies of this shift, it’s imperative to understand the factors contributing to the current state of the market. This blog aims to dissect the slowdown, its underpinnings, and its implications for buyers, sellers, and investors alike. I’ll explore the record number of condo completions, the dynamics of sales and inventory levels, the impact of interest rates, and the evolving market conditions.

Record Number of New Condo Completions

The end of 2023 into 2024 has seen an unprecedented surge in new condo completions in the Greater Toronto Area (GTA), leading to a pivotal shift from an undersupply to a potential oversupply situation. This increase in supply, amidst fluctuating demand, has started to recalibrate the market dynamics, subtly transitioning power from sellers to buyers indicating a slowdown in Toronto’s condo market.

There are several key points regarding the record number of new condo completions expected in the Greater Toronto Area (GTA) in 2023 and 2024:

Slowdown in Toronto’s Condo Market Due to Record Condo Completions in 2023

• Nearly 32,000 new condo units are projected to be completed in the GTA in 2023, surpassing the previous record of 22,473 units completed in 2020. 
• This surge in new supply is coming at a time when higher mortgage rates have made it harder for buyers, especially investors, to qualify and close on pre-construction condo purchases. 
• The influx of new units in 2023 has led to an increase in “assignment sales”, where buyers try to sell their rights to purchase the newly built condo before closing, as they can no longer qualify for the mortgage. 

Slowdown in Toronto’s Condo Market Due to Continued High Completions in 2024

• After the record high of around 20,165 condo completions in 2023, a further record of 26,934 units are scheduled for occupancy in 2024 across the GTA. 
• While some delays are expected, the large number of units scheduled for the first half of 2024 (17,918) suggests completions in 2024 will likely exceed the 2020 peak. 
• The surge in completions over 2023-2024 is attributed to a development pipeline filled several years ago when pre-construction sales were very strong.

Impact of a Slowdown in Toronto’s Condo Market

• The record number of new condo completions is flooding the GTA market at a time of lower sales activity due to affordability challenges from higher interest rates. 
• This has resulted in a substantial increase in unsold inventory, which reached a record high of 22,477 units in Q4 2023, equal to over 21 months of supply (double the balanced level). 
• 31% of pre-construction projects in Q4 2023 had sold less than 30% of their units, more than double the share a year earlier, indicating very low absorption levels for new launches. 

In summary, the record number of new condo completions in 2023 and 2024 in the GTA, driven by a development pipeline filled years ago, is contributing to a surplus of unsold inventory amid lower sales due to affordability pressures from higher mortgage rates. This supply-demand imbalance is expected to pose challenges for the condo market over the next couple of years and will lead to an ongoing slowdown in Toronto’s condo market. 

A Slowdown in Toronto’s Condo Market Due to Declining Sales and Rising Inventory Levels

With the latest figures indicating a decrease in condo sales and an upswing in unsold inventory, the once red-hot seller’s market is cooling down. The Greater Toronto Area (GTA) experienced a dip in condominium apartment sales by 3.4% in Q4 2023 compared to the previous year, with new listings seeing a significant increase. This shift heralds a move towards more balanced market conditions, presenting a nuanced landscape for potential buyers and sellers ​​.

Impact of High Interest Rates on Affordability Causing a Slowdown in Toronto’s Condo Market

The Bank of Canada’s interest rate hikes have played a pivotal role in shaping buyer sentiment and affordability and caused a slowdown in Toronto’s condo market. High borrowing costs have dampened demand and altered the affordability equation for many, especially first-time and move-up buyers. However, with forecasts suggesting potential rate cuts in the latter half of 2024, there’s a glimmer of optimism for those looking to enter the market​​​​.

Shift from Buyer’s to Balanced Market

As the market absorbs the influx of new completions and adjusts to the evolving interest rate environment, we’re witnessing a transition towards more balanced conditions. This adjustment phase is characterized by cooling investor activity and a cautious approach from speculative buyers, thereby opening doors for end-user buyers and those looking to move up the property ladder ​​.

Role of Investor Activity and Pre-Construction

Investor interest in pre-construction condo projects has traditionally been a driving force in the Toronto market. However, with changing market dynamics and cooling demand, the pre-construction segment is navigating through uncertain waters. Investors and developers are now reassessing strategies to align with the new reality​​ that creates a slowdown in Toronto’s condo market.

Outlook and Neighbourhood Variations

Looking ahead, the Toronto condo market is expected to experience variations in performance across different neighbourhoods. Forecasters predict a mix of challenges and opportunities, with price adjustments and sales volumes likely to differ from one area to another. Government policies and their potential impacts on the market also remain a point of interest for stakeholders​​​​.

Conclusion

The Toronto condo market is at a crossroads, facing a complex interplay of factors influencing its direction. While a slowdown in Toronto’s condo market presents challenges, it also unveils opportunities for buyers and investors to navigate the shifting landscape. Understanding these dynamics is key to making informed decisions in this ever-changing market.

As we move through 2024, keeping a close watch on market trends, interest rate movements, and policy changes will be crucial for anyone involved in the Toronto real estate sector. The market’s adaptability and resilience will be tested, but with the right strategies and insights, stakeholders can thrive in this new environment.