New condo sales in the Toronto area hit low not seen since financial crisis

New condo sales in the Toronto region dropped to the lowest quarterly total since the financial crisis in 2009 amid high interest rates and affordability issues, a new report has found.

The new Urbanation Inc. report stated that there have been 1,461 preconstruction condo sales in the Greater Toronto and Hamilton region so far this year, marking the lowest number of transactions seen in the same timeframe since 2009. In that year, only 884 sales took place amidst a global recession and housing collapse.

Toronto real estate expert John Lusink told CTV News Toronto Wednesday he’s been watching these patterns play out in real-time on Condo.ca and Property.ca, where condo sales have slowed down significantly.

“We are showing a decrease in the average sold per square foot. It’s dropped since the beginning of the year by at lease six per cent, if not more,” he said, adding that one-bedroom condo listings on his sites, both for sale and rent, are waiting sometimes up to 32 days for potential renters and buyers.

The Urbanation report stated on Monday that sales so far this year are down 71 per cent compared to the latest 10-year average for first-quarter periods. This year’s first quarterly sale also represents an 85 per cent drop from the first quarter high in 2022, with 9,723 sales.

The drop in sales is largely due to the high-interest rates making it difficult for people to make new purchases or even close previously-made purchases, Lusink said. Preconstruction buyers normally do not take out a mortgage until their condo unit is built, but sometimes, by the time a unit is ready, they no longer qualify for a loan.

“We continue to get notices from developers of buyers who are not able to close. These are transactions that some of our salespeople would have done two, three years ago and have now come up to close, but they don’t qualify anymore based on current rates,” he said. “Banks are saying ‘sorry, you know, either put more money down or we won’t advance the loan.’ So those units are having to go back on the market.”

Higher construction costs in some parts of the GTA have seen prices for new condos continue to climb despite a dip in sales, the report found. The asking prices for unsold units in the GTA are up two per cent over last year, sitting at an average of $1,161 per square foot, and continue to edge up, the report stated.

Prices for remaining inventory in the 416 region decreased four per cent year-over-year to an average of $1,522 per square foot, the report found. Despite the drop, condos both outside and inside the downtown core remain unaffordable for potential buyers. At the current average rate, a 600-square-foot condo in the downtown core would cost a buyer over $900,000.

On top of the high-interest rates and unaffordable price points, Lusink said another factor slowing down the market is that people’s income levels have not kept up with the rate of appreciation for real estate.

The Urbanation report stated that since the market began slowing in 2022 it has found 60 projects, amounting to 21,505 units, in the Toronto region that have been put on hold indefinitely.

So far this year, projects in the preconstruction are sitting at a 50 per cent rate of sale, with an average of 61 per cent in the first quarter of 2023 and 85 per cent in 2022.

Many of the new condo builders are using “widespread” incentives, including reduced or free parking, no development levies, reduced deposits, rental guarantees, and mortgage assistance programs, to encourage people to make condo purchases.

Lusink said that a lot of the investor-owned new condos are being pushed into the rental market amid the slowdown. 

“The buildings were already well on their way and they are pushing into completion, and a good chunk are owned by investors and they are putting them up for rent,” he said. “Then there’s a whole group of projects that are simply put on hold and they are going to wait it out.”