What do lower resale prices mean for new condo buyers?

According to the Toronto Regional Real Estate Board, the average price of a resale condominium unit in the Greater Toronto Area was $747,000 in June of 2022, an increase of 9.3 per cent annually. However, the average price was $809,000 on average in March of 2022, so prices fell 7.7 per cent over that three-month period.

So how does that impact you, as a prospective new condo buyer? You are purchasing a condominium today but not closing on that unit until the building is complete — 2025, 2026, 2027 or even later for some projects. So how much stock should you put on trends in the current housing market, versus the longer-run outlook for the GTA in three to five years from now?

Historical increases

New condo prices have increased for 26 consecutive years, but we’ve never been in a situation where there is so much uncertainty, as it relates to the housing market. The pandemic is clearly not over, as much as we try to ignore it, cases of monkeypox are rising, interest rates have been hiked at an unprecedented rate, yet inflation remains. Construction costs and government-related development fees are skyrocketing, which will ultimately lead to less supply in the future.

Immigration is back to record levels, job growth in Ontario remains solid, but out-migration from Ontario to other parts of the country has been very high. There continues to be supply chain issues, high gas and energy prices, and a desire from a significant number of employees to work from home.

Because of the strong sales over the last five years, the number of new condo projects under construction in the GTA will remain high for the foreseeable future, and thus construction costs will remain high and developers will have a floor where prices will not dip below. Whenever there is a market reset or slowdown, there is a flight to quality, as investors concentrate on downtown Toronto projects close to transit and employment. Young professionals will flock to small and affordable product where they are close to amenities and can walk to work.

Dynamic and desirable

If you put my feet to the fire, I think new condominiums will still sell, but price growth will be much more moderate. Projects will require three to nine months to reach their construction financing sales requirements from the banks, instead of the two weeks that has been the standard for much since 2017. There will be more incentives, and projects in outer-suburban regions will start to shrink in size or be downzoned to stacked townhouses or freehold built forms.

People still want to be in the GTA, young professionals still want to be in downtown Toronto, and we’re still one of the most dynamic and desirable cities in the world.

I wouldn’t bet against Toronto housing just yet.