Toronto condo developers see lowest new unit sales in 27 years

(Bloomberg) — Toronto’s condominium developers saw sales of new units fall to the slowest pace in 27 years as high interest rates temper demand despite a shortage of housing.

Sales of newly built condos in Canada’s largest city fell 57 per cent from last year, to just 3,159 transactions in the first half of this year, consultancy Urbanation said in a report Thursday. That’s the fewest in the first half of a year since 1997, helping unsold inventory rise to a record.

While the Bank of Canada cut rates in June for the first time in four years, the quarter-point decrease may not be enough to relieve pressure on a housing market that has grown unaffordable for many Canadians. With inflation easing and the unemployment rate rising, the central bank is widely expected to continue reducing borrowing costs — including at its rate decision next week.

The lower mortgage rates those cuts would bring may be the best hope for making new condos more affordable to buyers.

“Buyers remained cautious in anticipation of further rate cuts and amidst a burgeoning supply of units for sale,” Shaun Hildebrand, Urbanation’s president, said in a statement.

Despite the slowdown in sales and the buildup in unsold inventory, prices for new condos have held up, declining only 2.6 per cent over the past year, according to Urbanation. The consultancy said developers’ high construction and financing costs, as well as the prices they paid for land, make them unwilling or unable to reduce prices for their units.

And because most new condominiums are sold before construction starts — a way to secure financing for projects — the decline in new unit sales has translated into a decline in new developments. Only 727 new condo units started construction in the second quarter, a 20-year low, according to Urbanation.

With Toronto, and Canada more broadly, facing a shortage of housing that’s keeping prices out of reach and rents at record highs, the slowdown in future supply runs counter to policymakers’ efforts to boost building.

“The continued weakening in condo market conditions during the second quarter of 2024 is likely to cause more projects that were slated to launch this year to remain on hold,” Hildebrand said. “Others that are struggling to meet sales thresholds for construction financing may ultimately be pulled from the market.”