The flailing Toronto condo market probably won’t suffer the same fate as it did during a hard crash in the 1990s, according to a Canada Mortgage and Housing Corporation (CMHC) report released this week.
But the sector, which is seeing prices slide and demand plunge, is still far from a rebound – and the next couple of years look set to bring further woes for investors and landlords in the city.
In August, new condo sales slumped to just 118 across the Greater Toronto Area (GTA) – 59% below the same time last year and 90% under the 10-year average, according to an Altus Group report for the Building Industry and Land Development Association (BILD).
Here’s when experts expect a rebound
Jordan Nanowski (pictured top), CMHC’s lead economist for the Toronto market, told Canadian Mortgage Professional he sees the condo sector eventually recovering, but not until 2028 at the earliest.
He said while the millennial demographic appeared to have virtually no interest in buying or renting Toronto’s so-called “dog crate” condos – sub-500-square-foot offerings in the downtown core – those units will eventually find buyers.
“There does seem to be a bit of a disconnect in the sense that millennials make up the largest demographic now and they’re in their peak household formation stage,” he said. “They want bigger units typically, and these condos specifically don’t address that.
“That being said, I do believe that these condos will be occupied over time, and the market will absorb them. Immigration, which is one key dynamic, is declining and our target’s been revised, but it’s not zero.”
That will likely keep a floor under demand even as supply eventually begins to tick lower, Nanowski said. The well-publicized crisis facing preconstruction condos has seen scores of buyers walk away from purchases and developers shelve plans – with barely any new projects currently breaking ground.
The dearth of new construction might eventually narrow the gulf between supply and demand, but not anytime soon. The current slowdown, Nanowski suggested, has some way still to run.
“Pre-construction sales are almost nonexistent so there will be some kind of rebalance,” he said, “and that will likely happen from 2028 onwards, when we’re in a situation where the market has absorbed these units and there’s still demand for more condos. But there’s just an inherent lag with the supply response.
“You can’t just snap your fingers and produce a condo building. There’s a lag of several years to respond. So we do anticipate that the market dynamics will reverse eventually, and that would happen sometime from 2028 onwards.”
What’s next for Toronto condo prices and rents?
The current condo downturn is good news for renters and first-time buyers who previously found themselves priced out of a red-hot Toronto purchase market.
In August, the average condo price in Toronto’s 905 area fell by 10.6% compared with the same time last year, slipping to $594,881. Including the city centre, prices dropped by 5% year over year, to $642,195.
Rents, meanwhile, have also been on the way down. Across all unit types, average rents fell by 3% last month in Toronto. One-bedroom units saw a 5% decline, while two-bedroom rents dropped by 7%.
That mirrors a national trend: Vancouver, Halifax, Montreal, Calgary, and Edmonton all saw average rents fall in August, according to Rentals.ca, amid a wider cooldown in the housing and mortgage markets as a whole.
Toronto definitely won’t see strong price appreciation in the condo sector during the next couple of years, according to Nanowski, with rents in the same boat.
“A lot of developers are trying to switch their condo units that aren’t viable, and can’t meet their pre-sales targets, into rental units,” he said. “Additionally, roughly half of condos in the GTA are rented out.
“So the under-construction inventory that’s getting worked through will continue to push down rents as well.”
CMP
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