What is the state of the GTA new condo market?

The new housing market in the Greater Toronto Area has never been more confusing, and that’s coming from someone who is paid to figure out what’s going on.

Forecasts in the wake of the pandemic early in 2020 called for declines of 10 to 20 per cent in residential resale house prices as people hunkered down in their homes and many industries grinded to a halt, putting thousands out of work. Needless to say, those forecasts could not have been more wrong. Stimulative interest rate changes, intended to help out struggling businesses, actually fueled real estate spending. Preferences and needs changed in the work-from-home era, while some people were simply bored with staring at the same four walls and started looking for a different house or condominium.

Shift and rebalance

This shift and rebalance of the real estate market culminated in bubble-like conditions in January through to the start of March this year, not only in the GTA, but all over southwestern Ontario. Interest rate increases and threats of future hikes have put a damper on resale housing activity over the last four to six weeks.

The resale market tends to lead the new home category, meaning shifts in sentiment occur in resale before impacting new homes. After a blistering 12 months, when price growth in new lowrise housing shot up 40 to 60 per cent in many markets, we are beginning to see a cooldown, with slower sales and a ramp-up in purchase incentives.

Red-hot market

Will this cooling hit the red-hot pre-construction condominium market? According to the robust sample of online new condo listings that I use in my market reports at Bullpen Consulting, the average price for new condominium units in the GTA in April 2022 was $1,494 per sq. ft., an increase of 25 per cent annually. There are a couple different factors that have pushed up pricing in 2022, including a shift in the composition of the sample brought about by a higher number of downtown condo launches, and shrinking unit sizes.

According to data from the Altus Group, the average price of a new condominium that launched in the GTA in 2018 was $1.14 million, at an average size of 814 sq. ft. In the first quarter of 2022, the average price was $1.09 million, based on an average unit size of 648 sq. ft. More small units in the suburbs, a higher share of studio and one-bedroom units, and higher development charges have pushed the average size down, the average end-selling price down, and the average price per sq. ft. way up.

Material inflation, rising government fees/charges, and higher interest rates are all contributing to the unprecedented increase in the cost to build a new condominium. Developers must offset this by increasing their revenue – which means further increases in the average price per sq. ft. This can occur only with higher end-selling prices or smaller unit sizes.

Hard to predict

The questions that ultimately arise are: Can investors continue to pay more for new condominiums? Is there a market for so many small units in the resale market, upon completion, to either sell or rent?

Rent is clearly booming again, with data from rentals.ca showing that the average rent per sq. ft. for leased condominium suites was $3.70 per sq. ft. in April 2022, topping the pre-pandemic rent levels.

Buying a pre-construction condominium is very different from a resale home, as you’re betting on conditions in the housing market in four to six years from now. As I mentioned, the housing market in the GTA is very hard to predict, even on a month-by-month basis. But you can be sure of a couple things: Toronto will continue to be a highly desirable place to live and work, and there is not much political will for freeing up more land for development or lowering government fees. This should continue to lead to a long-term trend of rising prices.

In the meantime, you might see some notable volatility, but you must take a long-term approach when buying real estate. Good luck.