No housing or mortgage market watcher in Canada needs to be told that Toronto’s condo sector is in the midst of a nearly unprecedented downturn as prices continue to slide and inventory swells – with a glut of new supply scheduled to hit the market in the months ahead.
But while the pendulum has swung firmly back in favour of buyers in Toronto, first-time entrants to the market are still treading cautiously with little evidence of a big market rebound anytime soon.
Condo sales across the Greater Toronto Area (GTA) inched upwards by 5.8% in July, Toronto Regional Real Estate Board (TRREB) figures show. Still, even though prices are falling precipitously (average selling prices dropped by 9.3% year over year in July), they remain far too high for many first-time buyers to consider jumping into the market, according to Joel Fox (pictured top), co-founder and chief operating officer of real estate closing platform Ownright.
“They’re still expensive. The average condo price right now is something like $680,000 – which, when you look at the income required to purchase something of that price, is significant,” Fox told Canadian Mortgage Professional.
“You’re well into the hundreds of thousands of dollars to be able to afford that for a household income. And that’s not even considering those that are single trying to purchase.”
Buyers still feeling the impact of pre-2022 condo price spikes
As the popularity of Toronto condo units soared – particularly for investors – prices skyrocketed in the 2010s. In 2016, the average condo unit in Toronto sold for about $412,000, a figure that had doubled by early 2022 at the peak of investor mania.
That rapid runup means even the recent dip in prices isn’t sufficient to move many first-time buyers off the sidelines, with that buyer cohort particularly sensitive to interest rate movement (as noted by TRREB).
Interest rates ticked slightly lower over the past year with a flurry of Bank of Canada cuts, but the central bank has kept further reductions on hold during the past several months.
All that adds up to a daunting affordability outlook for buyers hoping to purchase for the first time in Toronto’s condo space, Fox said. “While we’ve seen the drop happen recently, we also went through a big price appreciation process throughout COVID,” he said. “So prices are still high and I think they haven’t gone low enough for people to feel confident to step back into the market.
“And then you mix interest rates into that, it’s not really an overly affordable proposition. So if someone’s coming in at 5% down or 10% on a $680,000 condo, your carrying costs are probably over $4,000 a month, which is just extreme.”
The rise and fall of so-called ‘dog crate’ condos
With a climbing percentage of condos in Toronto no longer owned by the end user, developers and builders began whittling down the average size of units over the past 15 to 20 years, resulting in the current oversupply of so-called “dog crate” condos: apartments under 500 square feet in size, with often bemusing layouts and subpar design.
Investor owners counted on a constant flood of demand from students and younger occupants during the boom years – renters who didn’t mind living in smaller, cramped units for a while.
But immigration and international student numbers have fallen, and the quality of many condo units is a serious problem for owners trying to get them off their hands, Fox said.
“You have the top of the housing pyramid, your detached homes, and then the bottom are condos,” he said, “especially those micro-condos. And so in a market where things aren’t overly strong, the trickle-down effect is just going to be increasingly impactful as you get to the lower part of the pyramid.
“We had our whole housing market open to foreign buyers before, which was really propping up the micro-condo industry. The rental industry was booming and we had a lot of investors coming into the market. [Now] all that you have left is the owner-occupier to take these on, and they’re not overly excited about the idea of taking on these tiny micro-condos that maybe weren’t built to the best standards that they would hope for when they’re going to sink in $600,000.”
CMP
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