According to Urbanation, a market research firm that tracks GTA development, the Toronto region’s new construction condo market will take its first real pause in 15 years in the second half of 2022.
Unit sales fell 68% year on year between July and December compared to the same period in 2021, making it the slowest second half period since the 2008 financial crisis.
Because of a strong start to the year, new construction condo sales were down only 30% overall in 2022.
According to Urbanation president Shaun Hildebrand, the slowdown that has continued into January, with only two project launches, means that there will likely be a shortage of units in three to four years, just as the Ontario government ramps up its efforts to build 1.5 million new homes by the beginning of the next decade.
“Regardless of what the government intends, market forces are taking over here,” he said.
Hildebrand stated that the new condo market needed to be adjusted due to “how overheated” it had become in recent years.
“I think we were due for a pause, and obviously the rise in interest rates was the catalyst for that,” he said.
Although the average price of a new condo increased 8% year over year in 2022, by the fourth quarter, prices had dropped 2% year on year to $1,329, according to an Urbanation report released Wednesday.
At the end of the year, the average asking price for unsold new condos fell by 1% quarter over quarter, from a record high of $1,443 in the third quarter to $1,427 in the final period. It was the first quarterly decline since 2018.
According to Urbanation, the drop in resale condo prices over the last three quarters has helped to lower the price of new and pre-construction units slightly. Although there isn’t much developers can do in terms of discounting new condos, they have been offering more incentives to entice buyers who are confronted with a record-high price disparity between new and resale units.
In the short term, the GTA’s new condo market is well-supplied, with 95,000 units under construction and a record number of apartments — 25,406 — expected to be ready for occupancy this year. However, for the first time in over a decade, construction numbers will begin to fall later this year due to fewer project launches.
Meanwhile, new supply is needed to meet the demand from rising immigration and renters who are delaying their entry into the home ownership market.
Although he does not see rents falling anytime soon, Hildebrand believes there will be enough new units this year to moderate the double-digit rent growth of 2022.
The 7,669 presale units introduced in the second half of 2022 represented less than half of the 16,227 units introduced in the first half of 2022 and were 48% lower than the 14,729 units introduced in the second half of 2021.
While sales are currently extremely low, he expects demand for condos to increase as interest rates stabilize.
“Developers are very cautious, and rightly so,” Hildebrand said. “They want to see more market momentum with firmer pricing (and) stronger absorption before they feel confident in launching new projects in the quantities we’ve seen in the past.”
