The Greater Toronto and Hamilton Area (GTHA) is witnessing a significant downturn in its condo market, with new sales hitting a near-30-year low. A recent report by Urbanation Inc. reveals that only 567 new condos were sold in the third quarter of 2024, reflecting an astonishing 81% decline compared to the same period last year. This trend marks a dramatic shift for a sector that has long been a cornerstone of Toronto's real estate landscape.
A Deepening Decline
The numbers speak volumes: in the first nine months of 2024, condo sales plummeted by 63% from the previous year and are 84% lower than in 2021. This downturn is not just a temporary dip; it suggests that 2024 could be the slowest year for condo sales since 1996. The driving force behind this decline is primarily the exit of investors from the market, which traditionally has fueled condo sales in the region.
High Costs and Investor Retreat
Davelle Morrison, a broker at Bosley Real Estate Ltd., highlights high interest rates as a major barrier for builders trying to finance new projects. Currently, there are nearly 89,000 condos under construction, but this number is the lowest in over three years. Coupled with soaring costs for new constructions—where preconstruction condos are priced between $1,300 to $1,600 per square foot—many buyers are opting for more affordable resale options priced between $900 to $1,100 per square foot.
Morrison poses a critical question: why pay more for a preconstruction unit when you can purchase a resale condo and see exactly what you're getting? This consumer mindset is further fueling the slowdown in new condo sales.
Inventory Challenges
The recent market shift saw a slight decrease in unsold new condos, dropping from a record high of 25,018 units to 23,918 units—a decline of 4.4%. However, the overall inventory remains concerning, with unsold units up by 16% compared to last year. This oversupply not only diminishes demand but may also prompt potential buyers to postpone their purchases, creating a vicious cycle of stagnation.
The limited new project launches further exacerbate this situation. Only one new project with 177 units was introduced in the third quarter, leaving buyers with fewer options. Moreover, many unsold condos require significant deposits (often at least 20%), which can deter interested buyers.
Economic Pressures and Project Delays
The current economic climate poses additional challenges. High interest rates, rising construction costs, and sluggish sales have created a perfect storm for builders and investors alike. Some developers have even shifted previously planned projects to rental properties or have paused developments entirely. In the third quarter, three projects with a total of 1,111 units were converted to rentals, and another 2,231 units faced delays or cancellations.
Looking Ahead
Despite the bleak outlook, there are signs that conditions may gradually improve. Analysts anticipate that as developers reduce supply and interest rates begin to decline, the market could stabilize. However, the path to recovery will depend heavily on broader economic factors and the willingness of buyers to re-enter the market.
In summary, the Toronto condo sector is navigating a challenging landscape characterized by high costs, dwindling investor interest, and an oversupply of unsold units. While the future remains uncertain, stakeholders will be watching closely for any signs of recovery in this vital segment of the real estate market.