GTA developers offering price adjustments

Toronto’s new housing landscape is undergoing a seismic shift, with the new condo market experiencing a significant sales decline, with activity returning to 2003 levels.

New condo sales in the Greater Toronto Area at the end of Q3-2023 fell by 47 per cent annually, with only 9,582 sales recorded. Bullpen is forecasting just 10,500 new condo sales in 2023, which is well below the long-run annual average of 23,250 from 2010 to 2022. Elevated interest rates and the lingering impact of last year’s property value surge have created headwinds for the market, leading to a slowdown in sales, fewer project launches, and an overall contraction in the real estate sector.

Short-term challenges

Despite the short-term challenges, the market remains undersupplied based on macro-economic factors, highlighting the enduring appeal of condominium living in the GTA, especially among first-time buyers and young tenants leasing suites from investors. The demand extends beyond conventional preferences for walkability, transit proximity and contemporary amenities, attracting diverse age groups, including boomers looking to downsize in the coming decade.

While the market experiences a slowdown, certain projects have defied the trend by achieving robust sales. Developers who price their developments at levels observed in the summer and fall of 2021 have witnessed success. However, many developers face constraints due to having acquired land at peak prices, making it challenging to lower prices to previous levels. A market reset will take time to materialize, as projects under construction complete and construction costs decline. However, the underlying demand is strong for housing in Toronto, as demonstrated by the continued increase in rental rates. Developers making savvy land purchases in the current climate are poised to reap rewards when the market rebounds in a couple years.

New condo prices have increased for about 27 consecutive years in the GTA, but data suggest that pricing is down about nine per cent year-over-year based on per-square-foot asking prices. Notably, the correction varies by bedroom type, with one-bedroom units experiencing a one-per-cent annual increase, while two-bedroom units witness a two-per-cent decrease.

Pricing is expected to continue to decrease with unsold inventory increasing, with a clear glut of luxury penthouses and larger 1,500 sq. ft. or larger units sitting on the market unsold.

New housing types

Looking at all new housing types, October 2023 saw 1,872 new home sales, marking a seven-per-cent decline from the same month in 2022 and a staggering 50 per cent below the 10-year average. Condos, accounting for 1,304 units sold in October, which are down 20 per cent from the previous year and 49 per cent below the 10-year average. In contrast, single-family home sales experienced a surprising uptick of 47 per cent, totaling 568 units, yet still falling 51 per cent below the 10-year average.

The new home remaining inventory has surged to 21,032 units, including 17,930 condos and 3,102 single-family dwellings – the highest level since 2016. Developers are cautiously testing the waters with new launches, gauging buyer readiness. Justin Sherwood of BILD notes that current monetary policy, interest rates and affordability challenges contribute to buyers sitting on the sidelines, impacting future housing starts. Delays in preconstruction sales translate to delays in adding housing supply, and the market awaits signals of more moderate interest rates to spur increased supply.

Deals to be had

Toronto’s developers are navigating challenging waters, grappling with a significant sales downturn and a gradual price correction. Despite these challenges, underlying demand for housing remains robust, driven by factors such as immigration, low unemployment and soaring rents. Bullpen advises developers to make strategic moves in the current market conditions, anticipating future rewards when the market comes roaring back in 2025 and 2026. As the market undergoes this transformation, careful consideration of pricing strategies and an awareness of evolving buyer preferences will be crucial for developers aiming to weather the storm and position themselves for long-term success.

From a buyer perspective, there are still select deals to be had, and anyone looking to purchase a pre-construction unit should compare the price of a new unit versus a comparable recently-completed unit. Contact an experienced broker that understands where that new housing premium should be, and make an informed decision. Good luck.