The party may be over for condos

From 2016 to 2018 condo prices rose 40% in Toronto. After years of slow growth in comparison to the detached market, the condo sector was getting its time in the sun. But that window of success may now be closing. To start 2019 the average condo price has barely outperformed inflation, while sales are slipping even lower and inventory is starting to build back up. This is leading to more and more industry voices advising against condos as an investment.

resale condo pricesSource: TREB, Six Housing Sense

The benchmark price for condos has managed to increase over the last year, however, it too is showing signs of weakness. The 20 and 30% gains seen throughout 2017 were never going to last, and the annual gains since then have softened with each passing month. Without a revived price growth in the spring season or second half of 2019, there is the real chance that the benchmark price will slow to low single digit growth or even become flat by the end of the year.

new resale condo compSource: BILD – Altus Group, TREB, Six Housing Sense

Continuing with prices, the Toronto condo market has a complete imbalance between new condo prices and prices on the resale market. The benchmark price of a new condo in the city is $792,709, even though the benchmark price of a resale condo is only $554,300. That 43% gap is significant because anyone hoping to sell their new condo upon completion will be competing against far less expensive units. It also means that buyers of new builds will be locking in a price that the rest of the market likely will not catch up to by the time the building is finished.

new resale condo salesSource: BILD – Altus Group, TREB, Six Housing Sense

Perhaps the biggest issue Toronto condos are dealing with is shrinking sales. New condo sales were down 50% year-over-year last month and resale condos were down 14%. Making the matter worse is that each of these stats were in comparison to 2018 figures, where sales struggles had already started.

new resale condo invSource: BILD – Altus Group, TREB, Six Housing Sense

Not surprisingly with shrinking sales, inventory levels are rising for new and resale condos. New condos available on the market rose by 21% year-over-year from 9,285 in February 2018 to 11,269 in 2019. Resale condo supply increased by slightly less, 14%, which raised inventory by 250 units year-over-year. For the resale market, the rise in available units has only increased the months of inventory (MOI) count to 1.6 (a 33% increase), while the MOI for the new build segment has nearly tripled to 14.6 months. With inventory building in both condo markets, the pressure on prices will only continue.

Toronto condo sales has been the weakest performing segment under TREB to start the year, and new condo sales are showing no strength compared to pasts years or new single-family units. For nearly two years the attention has been on how the detached market has struggled since prices peaked in 2017. As this year’s spring season starts, the focus might shift to how condos are now experiencing challenges. In any situation, stagnate prices, dropping sales and rising inventory is rarely a recipe for success.

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