Greater Toronto’s real estate rut shows no signs of ending soon. BMO Capital Markets recently shot down the pent-up demand and slowing supply narratives, warning investors the market is filled with supply no one really wants.
Toronto Real Estate Weakness Is Being Led By Condos
Source: BMO Capital Markets; TRREB.
Toronto’s slide continued last month with condos absorbing the bulk of the pain. Home sales dropped to a multi-year low in February (-6.4% y/y), while typical home prices fell 7.9% y/y. Condo prices tanked 9.5% over that period, now sitting roughly 25% below their early-2022 peak.
“The condo market is well in recession,” BMO economist Robert Kavcic says flatly.
That won’t shock anyone in the industry. The real question is how much longer this drags on.
Pent-Up Demand Won’t Be Enough To Save Toronto Condos
Greater Toronto’s population is approaching 7 million. Home sales have cratered to near-record lows for three years straight. Even the least optimistic observer is starting to ponder if this will trigger a spring recovery.
Kavcic doesn’t see it happening, noting: “There is plenty of pent-up supply coming to completion to at least match it.”
While the bank didn’t elaborate in this research note, it previously laid out a straightforward thesis: Millennials have hit their natural demographic peak, and demand was heading for a lull regardless.
Will they re-enter the market now that prices are back to where they were ahead of the demand surge? Nope. “Investors aren’t going to touch this market, taking on negative cash flow at a time when rents and prices are both falling,” Kavcic explains.
Toronto Condo Market Filled With Supply No One Wants
Falling investor demand has led to a wave of condo project cancellations and delays. That’s set to slow new supply inflows, but is it enough to offset the glut already on the way?
“Residential condo construction is going to fall off further given presale activity has dried up,” explains Kavcic. “The pipeline is full of inventory that end-users don’t really want. This will be the market rebalancing itself.”
Didn’t you guys predict all this? Didn’t Stephen testify to a finance committee explaining that This would happen ?
Weird how politicians never listen to good advice but I guess that’s why they’re politicians…
Buying any condo is just financial suicide. Ever increasing fees are making them more and more difficult to sell. The current prices are falling and there might never be any recovery.
I’ve owned a Toronto Development company since 1980.
When we developed a 155 suite 16 storey condo in Milton, 80% of the 130 ‘firm’ sales defaulted on their Closings. 1250sf suites sold at $135,000.
To resell the units in 1992,we..
1. Introduced the HOPE program which provided 1
100% financing.
2. Offered 8 years of free condo fees to the year 2000
3. Offered free flights on the Concorde to London. ( thankfully not the last one 😳)
4. First to use a US Auction House to blow out the last 30 units with bids starting at $36,000.
Developer fees through the process.. $0.
Developer profit $0.
Lender litigation.. None because we finished it.
Right back developing by 1995..
http://www.bgigroup.ca
Don’t forget the special assessments.. 😳
To everyone who said investing in condos was great and that I was just dumb: haha.
It was until it wasn’t. I’m often told that somebody worked out whether buying a home or renting was better financially, they believed the latter was despite being a homeowner who has seen their house increase six times. You could definitely see it that way if you got into an apartment and stayed there for 20 years with annual rent increases not keeping pace with the market rates, while your investments increased by 8% annually.
The opportunity of real estate investment is if you want to buy $1m in stocks and bonds you need to have a million dollars, or good enough credit and income to get a loan like that(good luck). If you want to buy housing then you only need $50k down plus the fees and everyone wants to lend to you. If the property increases in value by 5% then your equity goes from the $50k down payment to $100k in a year. If it goes up another 5% now it’s $152,500.
Even if it’s “cashflow negative” because the rent doesn’t fully cover the mortgage, fees and insurance etc it’s still equity positive as long as it goes up in value.
As long as you don’t overextend yourself you can weather a downturn.
i hate condos ! too small!!
average size 600 sf
(am I allowed to say that?)
is that hate speech?
just saying,
Too much labour because of massive immigration levels results in low wages Housing is not affordable.