Toronto’s condo market shows signs of recovery, but will rebound last?

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Millicent Wong
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financial post

  1. property

Mortgage payments for condos now more closely match rental costs

Released May 4, 2023 • Last updated May 4, 2023 • 3 minutes reading time

Condominium buildings in the Liberty Village neighborhood of Toronto. Condominium buildings in the Liberty Village neighborhood of Toronto. Photo by Carlos Osorio/Reuters files

Condo sales in the city of Toronto slowed to a bare minimum through the end of 2022, but the market showed signs of recovery in the first quarter of 2023, data from the Toronto Regional Real Estate Board showed. The question now is whether this upswing has legs.

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TRREB’s quarterly condominium report, released April 27, showed that 2,961 Toronto condos were sold in the first quarter. While that was down from 5,368 in the same period last year, the 2023 numbers included two strong month-on-month gains of about 58 percent in February and 48 percent in March.

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April data released on May 3 showed sequential gains had slowed to 3 percent, but 1,453 units sold were nearly flat with last April’s total, the closest to a year-over-year increase in more than 12 months. Percent gains in the wider GTA region were similar.

Prices are also recovering and are now posting modest gains for three straight months, although the April average price of $751,916 is still down from last year’s $820,835.

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TRREB’s condominium report suggested that conditions were ripe for a strengthening of the market later in the year, due in part to a rebound in first-time buyers on the back of rising rents.

“Higher borrowing costs caused a temporary lull in condo buying. However, recent Ipsos surveys for TRREB suggest that first-time buyer activity will increase noticeably this year,” said Paul Baron, head of the Property Authority.

The TRREB president said that despite still high interest rates, mortgage payments on a condo are now closer to the cost of rent for many potential buyers.

“Based on the expectation that first-time buyer activity will pick up this year, we expect the condominium segment to be among the frontrunners of the recovery in terms of sales and price growth,” said Jason Mercier, chief market analyst on the board.

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Average condo rents in the greater Toronto area rose at least 9 percent annually in the first quarter of 2023 due to strong population growth and high borrowing costs.

“The GTA condo rental market continues to be an important source of rental supply and is helping to manage record-breaking population growth. However, the tight market conditions are resulting in an unsustainable pace of rental growth,” said Baron.

Some prospective homebuyers turned to the rental market as the Bank of Canada began raising interest rates, leading to increased demand despite the limited supply of rental properties. While the rental market benefited from an increase in supply, competition among tenants remained fierce, TRREB said.

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As for whether this uptrend will continue for the rest of the season, Mercer said the market follows a similar pattern from year to year unless there is a real shock to the system, such as the onset of rate hikes over the past year.

“Just thinking about the regular seasonality of the market, I expect higher sales in May and even June,” he said in an interview. “Even adjusting for the time of year, I think we’ll continue to see an upward trend in sales.”

Tom Storey, a sales rep at Royal LePage Signature Realty, agreed, saying while he expects the market to bounce in May and June, like typical pre-pandemic spring markets, he doesn’t expect blockbuster numbers.

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“This is probably the first normal spring market in years,” Storey said in an interview.

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He expects seasonal patterns – calm in summer and rebound in fall – to reemerge after disruptions from the pandemic and Bank of Canada rate hikes this year.

He said buyers are “certainly back” and people waiting courtside are coming out, and Toronto is still where demand for one-bedroom and one-plus-cave units is highest — in other words, after the more affordable segment of the market.

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