If you've been keeping an eye on the Toronto condo market lately, you might have noticed some changes. Don't worry; we're here to break it down for you in simple terms, whether you're a potential buyer or just curious about what's happening. Let's dive into the latest updates!
Condo Sales Slowdown in Q3-2023
In the third quarter, Toronto’s new condo market experienced a more significant slowdown than what we typically see. This was partly due to caution among both buyers and developers. The Bank of Canada had raised interest rates to a 22-year high, making everyone a bit hesitant. While condo sales did go up by 41% in Q3 compared to the previous year when interest rates were rising rapidly, the number of presale condos was the second lowest it's been in the past 20 years for this time of the year.
Limited New Condo Launches
During the summer, there weren't many new condo projects launched. Only 2,491 units were brought to the market as presales in the last quarter, which marked a 23% decrease compared to the previous year and was 41% below the latest 10-year Q3 average. Half of these launches occurred in September, following a pause in rate increases by the Bank of Canada. The momentum continued into October with 6,916 units launched so far in the fourth quarter, surpassing last year's 4,859 launches.
Condo Supply V.S. Demand
While the supply of new condos is improving, the rate at which they're being bought (absorption rate) remains below normal. This situation makes it challenging for developers to keep launching new projects. In Q3, only 42% of the units brought to the market were sold by the end of the period, slightly higher than the latest four-quarter average but significantly lower than levels seen before the interest rate hikes.
905 V.S. 416
When we examine condo sales in the GTA for this year, we notice that the majority (57%) of them were in the 905-Region. In that area, condos were sold at an average price of $1,161 per square foot. On the other hand, in the City of Toronto, new condo launches had a higher average price of $1,383 per square foot. The rate at which condos were bought (absorption rate) was 61% in the 905 region and 43% in the City of Toronto. The price range between $1,100 and $1,199 per square foot had the most condo sales in both areas this year.
Price Adjustments
As more people look for condos they can afford, there's a growing gap between the asking prices for unsold units and the selling prices for new units. In the third quarter of 2023, the average sold price for new launches reached its lowest point in two years, at $1,216 psf. This was a significant drop of 18% from the highest prices seen in the same quarter in 2022. However, asking prices for remaining inventory decreased only by an average of 2.5% over the past year. Most new condos, about 86%, were presold by the third quarter for 2023. This made it hard for sellers to lower their prices due to high development costs.
Resale Market Challenges
In the resale market, condo prices kept going down during Q3-2023, and they dropped by 2.8% compared to the previous quarter. If we look back to the highest prices in Q1-2022, condo prices were down by 11%. As interest rates rose, there has been a shift in the distribution of condominium resales, with fewer condos selling for over $1,000 psf.
The Future of Condo Construction
Looking ahead in the medium-to-long term, the slowdown in new condo sales is expected to have an impact on the beginning of new construction projects. We've already seen a significant decrease in the number of new condos that have started construction. This trend is likely to continue in the next few quarters, which will affect the availability of new condos.
The Toronto condo real estate market has been experiencing some shifts due to rising interest rates and changing buyer preferences. If you're thinking about entering the market, it's essential to stay informed about these trends and seek guidance from experts to make informed decisions. The market may be evolving, but with the right knowledge, you can navigate it successfully.
