Prices and sales slide again as the condo crisis continues
Sales and prices are on the way down again in Toronto’s condo market, with new Toronto Regional Real Estate Board (TRREB) data showing the sector’s downturn is dragging on.
The number of condos sold last month fell by 2.6% across the Greater Toronto Area (GTA), tumbling to 1,330 as both the city centre and wider 905 region posted declines.
Prices, meanwhile, slipped by 3.6%, spurred by a big drop (7.6%) in the 905. The average price of a GTA condo now sits at $617,593, nearly 20% lower than its February 2022 level – and another new report suggests smaller condos are faring even worse.
Microunits are losing value at about twice the pace of larger ones, Wahi Realty Inc. Brokerage said, as appetite for those condos – christened “dog crates” by Toronto mortgage broker Ron Butler – continues to plummet.
‘The product of distress’: Microunit turmoil rumbles on
Toronto mortgage professionals see the grim outlook for those sub-500-square-foot condos continuing. “End users for those ones are very, very limited,” Micky Khaneka (pictured below), a broker with Team MKG, told Canadian Mortgage Professional last week.
“I don’t think there’s a lot of opportunity in terms of people holding them as investments or to live, because it’s just unfortunately the way they’re structured – it doesn’t really appease a lot of people in different segments. And it continues to be the product of distress.”
Another crisis plaguing the condo sector in the city isn’t showing signs of slowing: the wave of buyers who purchased preconstruction condos years ago for a certain price, only to see appraisals come in far lower upon completion because of the market downturn in the intervening years.
That’s left scores of buyers scrambling to make up the gap between the appraised value and what they agreed to pay, with some leaving their deposit on the table and abandoning the purchase – exposing them to potential legal action by developers.
“They’re just so far removed from what they were sold at that a lot of people, unfortunately, are in a bind,” Khaneka said. “Unless banks or institutions have blanket appraisals on it, people just don’t really have much of an option unless they have equities in other homes that they’re taking out to cover the deficit.”
The big problem: Canadians don’t want to live in micro condos
When demand for rental properties was booming in Toronto, those smaller units were seen as a lucrative investment – but that bubble seems to have concealed the reality that virtually no potential buyers actually want to live in those units.
A perfect storm of factors contributed to the market’s meltdown: immigration plunged, removing a key renter cohort, while interest rates jumped after 2022 and overall purchase demand cooled across the city.
“We know from our own research that most Canadians ideally want at least three bedrooms in a home, so microunits with one – or in many cases, zero – bedrooms have much more limited appeal for end users,” RPS-Wahi economist Ryan Mclaughlin said in remarks accompanying the company’s latest report.
“Add to that the fact that there are so many deals on the condo market right now, and buyers who are still active have the opportunity to purchase larger units than they may have been able to afford previously.”
The eruption of the US-Canada trade war last week has added a new element of uncertainty to the housing market outlook across Canada, with observers including Bank of Montreal (BMO) economist Sal Guatieri highlighting the potential damage it could cause to market activity if the two sides fail to reach a resolution soon.
For Khaneka, the current glut of available condos means the market outlook is likely to stay sluggish for the foreseeable future, even for larger units.
“In terms of current resales, the inventory is relatively high. They’re not moving as fast as they were,” he said. “If that’s a home that someone is targeting, there are some great opportunities. I just don’t know how long it will take, given that there’s a massive amount of inventory still in the market.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
