Sales were up again in May, but prices are still on the way down and few industry members see the tide turning yet
Condo sales in the Greater Toronto Area may be on the up, but mortgage brokers in the city say they’re still seeing few signs of a recovery in the sector as prices continue to fall.
New Toronto Regional Real Estate Board (TRREB) data released this week showed that purchase activity in the condo space, which has taken a battering over the past two years, ticked up by 4.2% in May compared with the same time last year.
But prices both in the city centre and the wider 905 area are still on the way down, falling by a combined 6.4%, and brokers on the ground say the modest sales increase needs to be viewed in the context of shockingly low numbers last year.
And while condo purchase activity has now increased in four consecutive months, it remains startlingly lower than the levels seen at the market peak in 2022 – with plenty of potential buyers still not convinced now is the right time to make a move even despite the drop in prices.
The main reason for that continuing freeze will come as no surprise to mortgage market watchers: many buyers still think the market’s bottom is nowhere in sight, with no sign of a rebound on the way.
“Some of the clients we’ve had that are looking into condos are in no rush to buy because they know that the market’s bad and they’re hoping that they can wait it out and see if it drops even further,” Taz Zaide (pictured top), a mortgage agent with 6ix Mortgage Group in Toronto, told Canadian Mortgage Professional.
“I don’t see anybody trying to rush into it. Lots of people want to sell, but people don’t want to buy. That’s why these values and prices are dropping – so they can offload it as quickly as possible. That’s becoming a challenge as well for sellers.”
Sellers face hard choices in a buyers' market that isn't buying
While most condo sellers – whether investors or end users – have a specific price point in mind to avoid going into a negative equity situation if they sell too low, the truth is that the market’s deep downturn means they probably won’t get the price they want, Zaide said.
That’s created well-publicized challenges for investors who own condos: sell at a loss, or hold a property that’s producing a negative cashflow each month.
“They want to at least try to make back the money that they put in when they first bought the property. But the reality that people need to face is that likely won’t happen,” Zaide said. “Especially if you’re buying these condos at less than a 20% downpayment. You’re already in a situation where you’re probably in negative equity if you sell, after all of the fees.
“It’s tough, because these people are having to take a hit and actually cough up some money from their pockets just to offload these condos.”
Lenders tighten downpayment rules as prices slide
A big bet on the Toronto condo market by global real estate firm Jesta Group, which pumped $500 million into the sector in May, stirred speculation that a further buying spree by commercial giants could be imminent.
But plenty of major lenders still aren’t sure about prospects of an imminent recovery, with many casting a wary eye over the sector. Zaide said some are even upping their downpayment requirements amid the market’s continuing turbulence.
That suggests the caution and uncertainty that’s pervaded the sector since interest rates started rising in mid-2022 could still have some way to run.
“Some lenders are saying that you need a minimum 25% downpayment,” Zaide said. “So you’re looking at a more substantial downpayment. The reason for that is that these lenders are aware that condo prices are dropping, so they don’t want to be in a negative equity situation themselves.
“When they lend money to someone and then the value drops, now the lender’s at risk of not getting the money if the person defaults. So I think that’s also why they’ve started asking for larger downpayments on condos so that they could cover any shortfall should it happen on the prices.”
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