Opinion: As the Toronto condo market sags, maybe renting is better after all

Meaghan MacSween works in strategic communications.

In Toronto, we elder millennials are a subgeneration divided when it comes to real estate. We either got in early, or we balked and missed the boat.

I was one of the latter – until last year, when I became financially able to buy a condo, and decided to try.

All feedback I received from loved ones and industry people was unanimously in favour of buying. And experts quoted in the media seemed to support – or at least presume – the positive outcomes of ownership. Conversations were framed in the context of when to buy – rarely whether to buy.

For months, I viewed units, got preapproved and locked in rate holds. I was ready but convinced that a couple more Bank of Canada rate drops would perfect my plan.

But then in August, 2023, something happened.

The landlord of my condo rental put my one bedroom plus den unit up for sale. He priced it averagely for the current market. The unit received very few showings. My landlord would intermittently lower the price but to no avail. Fall became winter, spring became summer. The unit remains for sale, an entire year later.

At one point throughout all of this, I tried to solve both my problems at once by making a sole offer to my landlord. My offer was fractionally under his asking price. He didn’t budge.

It began to hit me. Why would I buy a condo that, clearly, cannot sell at current market prices? Further, why would I look elsewhere, and buy a comparable unit that probably also cannot sell at current prices?

My landlord had understandably bought a new condo back when rates were low, and value was appreciating. I couldn’t blame him for keeping the selling price in the mid to high 500s – he was already taking a major hit, lowering it to much less than he paid for. Like so many other investors in the current Toronto market, it would be difficult to mentally reconcile this kind of loss.

Sure, sooner or later people like my landlord might give up and sell for lower which would seem attractive to the renters of my generation who have wanted more affordable housing all along. But we should be careful what we wish for. As I pondered my options in the current market, I realized that owning an asset that keeps depreciating may not be the best investment.

Clearly, both my landlord and I have been slow to settle into this very new reality. But this isn’t just my condo – it’s the Toronto condo market in 2024.

“In a year, everything has turned on its head,” says Pino Di Mascio, a Toronto urban planner and Partner at SVN Architects + Planners. “Typically in Toronto, people rent in their 20s and 30s. Then they look to buy, on the understanding that their home will appreciate – because for over 25 years, they did.”

Royal LePage Signature’s Tom Storey confirms what I’ve heard and read: Demand for Toronto condos has historically come from first-time homebuyers and investors, and both groups are staying away. “Investors are less interested due to the current interest rates,” he says, “and first-time homebuyers are struggling to qualify because of the mortgage stress test.”

A modest one-bedroom condo priced at $550,000 with taxes and fees costs about $3,200 a month for mortgage payments. Renting a unit of this size in the first quarter of 2024 averaged $2,400 a month. For investors, the math no longer works.

The Bank of Canada is cutting interest rates now, but it would take a long time for rates to come down to a level where the condo market could potentially recover. And it’s a big “if” if the bank will keep cutting rates over the long term.

This leaves an unprecedented number of condos on the market. According to the Toronto Regional Real Estate Board, there’s a six-month inventory of condos. Meaning if nothing new came up for sale, it would still take six months to sell every condo currently on the market. A recent poll from Urbanation hammers this home, citing 2024 as the slowest first half of the year for new condo sales in the Greater Toronto and Hamilton Area since 1997.

“We’ve never seen a situation like this,” Mr. Di Mascio said. “But as people begin to realize that home values don’t always appreciate, they could make the conclusion that they are better off renting.”