Greater Toronto real estate has seen new home sales collapse, but prices have been sticky. That’s beginning to turn, according to February data provided by Altus Group. Falling sales and rising inventory are finally chipping away at prices. However, recent gains since 2020 remain significant despite doubling inventory and halving sales.
Greater Toronto New Home Prices Fell Over 5%
Greater Toronto new home prices have been slipping over the past few months. The Altus single-family benchmark price fell to $1.76 million in February, down 5.4% from last year. Condo apartments weren’t too far off with a 5.5% drop to $1.11 million over the same period. Both measures are back to mid-2021 levels, still much higher than 2020.
Greater Toronto New Home Prices
The price of a typical new home sold in Greater Toronto, by segment.
Source: Altus Group; BILD GTA.
Greater Toronto New Home Sales Are In A Rut, Toronto Sells First Single-Family Unit of 2023
Weak demand for new homes has been a major contributor to the recent price pullback. Developers sold just 225 single-family units in February, a 65% drop from last year. The City of Toronto represented just 1 of those units, a 98% drop from last year. That special home was also the first, and only, new single-family home reported sold in the City for 2023. Break out the champagne!
Condo apartments are still the vast majority of sales, but in a similar boat when it comes to falling sales. Just 697 units were sold in February, a drop of 78% from last year. The City represented 573 of those units, down 67% from last year. Condos in the City saw sales contract sharply, but the suburbs took the biggest hit.
Greater Toronto New Home Inventory Is Surging Higher
There is some good news—rising inventory levels. Well, good news for the general population, not investors. Single-family inventory reached 1,590 units in February, up 191% compared to last year. Condo apartments, representing most inventory, climbed 51% to 13,031 units over the same period. It’s more inventory, but is that totally a lot of inventory? It depends on who you’re asking.
Qualified New Home Demand Vs Theoretical Demand
We can break down Greater Toronto real estate demand into two segments—qualified and theoretical. Qualified demand is often determined by inventory absorption, and is relative to the inventory offered. One industry metric for understanding qualified demand is the sales to active listings ratio (SALR), which are sales as a percentage of total inventory.
The SALR is down significantly compared to last year, as falling sales meet rising inventory. Single-family homes fell to a ratio of 14% in February, compared to 117% this time last year. Condo apartments had a 5% SALR, dropping from 25% over the same period.
Generally speaking, a ratio of 12% to 20% is a balanced market, where prices are right for the market and don’t move much. Above that is a “seller’s market,” where excess demand drives prices higher. Below that it’s a “buyer’s market,” where there’s an excess demand of supply and prices generally fall to find the point where people buy. It’s important to understand that the ratio is a lagging indicator, so the trend’s direction can provide more insight than the ratio itself.
In this case, single-family homes are priced right for the market as long as this level is stable. Condo apartments are in a buyer’s market, with the risk slanted lower for home prices. Now this is qualified demand—where people actually purchase the units, even if investors are most of Greater Toronto real estate demand.
Then there’s theoretical demand, which relies on adequate housing for the population growth. Canada’s sharp population growth, especially around Greater Toronto, is a good example. Ideally, more people equate to more demand for housing, especially if the focus is on people having adequate housing. Highly financialized markets like Greater Toronto aren’t just shelter though, it’s also an investment.
The cost of housing would need to fall, either in nominal or real (inflation adjusted) terms over time for the market to increase absorption without credit manipulation. Just because a population is growing, doesn’t necessarily mean the population can afford to pay more for housing. We see this problem in developing countries, where the number of occupants per home increases, without placing too much pressure on home price growth.
Collapsing sales has the industry shifting from “look at the sales” to “look at the growth.” So far, that hasn’t translated into more sales or higher prices now that the credit stimulus has been removed. Though with falling mortgage rates ahead of the Spring market, the sentiment might shift for buyers. At least for investors.