The ups and downs of the GTA new condo market

As the calendar turned to 2022, the investment market for new-build condominium units was roaring across the GTA, with pricing peaking at more than $1,700 per sq. ft. (psf) for new condos in Q3-2022 in the city of Toronto. Low interest rates, coupled with record-high demand, resulted in record-high prices in the new home, resale and rental markets. However, global inflation resulted in the central banks changing their interest rates worldwide, which resulted in higher borrowing costs and lower new condo demand from investors. Based on a sample of new condo listings in Q1-2023, the average new condo in Toronto has declined fiver per cent from the market peak to about $1,630 psf.

The question is, what does this mean for the future of the new condo market?

Understanding market value

First, there remains demand for new condominium units in Toronto and southwestern Ontario, and investors still strongly believe in the long-term prospects and viability of investing in pre-construction homes. However, the reality of the market is that closing risk and elevated interest rates will likely keep the new condo market operating below capacity for the next 18 to 24 months, which has the positive of reducing construction costs, but the negative of keeping developers cautious and land values stagnant.

In addition to the softening new condo sales market, developers are cautious for several reasons, including inflation in both soft and hard costs, increases in interest rates, and concerns about government intervention through measures such as development charges (DCs), inclusionary zoning, and other taxes and fees.

Another major hurdle for developers is understanding market value, as the aggregate data published by third-party data providers cannot reliably account for the discounts offered in today’s market, which are plentiful. Additionally, pricing is not being reduced on unsold inventory where the developer has secured financing and is content to wait out this current mini-downturn. Many recent launches are at 2022 values, and sales are coming in low, as pricing has not fully adjusted due to the impacts of higher rates.

Tremendous opportunity

What this means for buyers is there is tremendous opportunity to buy at price discounts if you shop around. Further, there is the opportunity to put down less money today and take advantage of real estate appreciation without a mortgage. Research your options, and really understand the local market and its future prospects.

Significant tailwinds remain for the housing market in Canada and Ontario. Population growth is near a record high domestically, with the latest figures showing immigration at twice the long-term average. In Ontario, the unemployment rate is at the lowest level in 20 years, despite the Bank of Canada raising rates. These two factors will boost demand, and supply will still be challenged to keep pace, as many politicians still subscribe to the tired NIMBY mindset.

The housing shortage has influenced more politicians to be more supportive of increased density and more apartment and condo developments. Oakville Mayor Rob Burton has done a near 180-degree on this issue. He was once against development, but now has changed his tune. Burton still protects lowrise single-family homeowners, but is willing to upzone sites in industrial areas and beside the highway, going full YIMBY on those sites – pushing for highrise towers.

Consistent growth curve

These changes coming out of Oakville could begin a trend as mayors and elected officials become more open-minded about tackling the need for more housing. At the same time, moredevelopers want to bridge the divide between developers, elected officials and consumers.

While pricing has dipped from its usual highly consistent growth curve in 2023, it’s important to note that since 2018, new condo units in Toronto have increased almost 60 per cent from slightly more than $1,000 psf. Buyers that take a long-term mindset will do just fine, and buying pre-construction forces you to take that long-term approach, as Toronto’s new condo projects are getting bigger and taking longer to complete. Just do your homework and surround yourself with an experienced team. Good luck.