More Canadians are rejecting condos as a good investment, and that could open the door for some younger home buyers to enter the real estate market.
According to a survey by Léger for Rates.ca Group Ltd., a financial products comparison website, more people – 35 percent in November compared to 30 percent in March – said condos used to be a good investment but are no longer. 56 percent said they would not buy a condo for any reason.
The survey of about 1,600 adults also found that 38 percent of men viewed condos as a bad investment, compared to 32 percent of women.
The condominium market has been under pressure for several years as rising interest rates drove up construction and ownership costs and an oversupply of units and projects drove down prices.
Toronto was at the epicenter of the condo market downturn.
According to a recent report from Urbanation Inc., a real estate consultant, third-quarter condo sales in the Greater Toronto Area and Hamilton fell to their lowest level since the same period in 1990. Year-over-year, third-quarter sales fell 54 percent this year and fell 92 percent below the 10-year rolling average.
“With the new condo market on track to have its worst sales year in three and a half decades, project cancellations have skyrocketed,” Shaun Hildebrand, president of Urbanation, said in the report.
Despite the canceled projects, the number of unsold completed units rose 142 percent to a record high, leading to falling sales prices.
Average asking prices fell 3.5 percent per square foot (psf) year-over-year and 9.6 percent year-over-year, Urbanation said.
Prices for developer-owned condos averaged $1,199 per square foot in the third quarter, compared with $867 for resale condos.
Investor profitability in the condominium market has also dwindled, a report said
Canadian Mortgage and Housing Corp. Report At the beginning of the year.
But the Léger poll found there were areas of optimism. Nearly four in 10 people under 35 said they would consider buying a condo, compared to 27 percent of those over 35 and 31 percent overall.
“The condo market has changed, and with it has changed who is driving demand,” said Victor Tran, mortgage and real estate expert at Rates.ca and agent and broker, in a news release.
Tran, who also works as a broker and real estate agent, said he is seeing more interest from first-time homebuyers in purchasing a condo.
“With higher inventory levels, fewer bidding wars and sellers being more willing to negotiate, younger buyers now have options they simply didn’t have a few years ago,” he said.
But condos may make more sense for first-time buyers, according to the Royal Bank of Canada's latest housing affordability index in October. The cost of home ownership as a percentage of median household income is 36.2 percent for a condo, compared to 60 percent for a single-family home.
“There is an opening (in the condo market), but there is also no reason to buy at this time,” Hildebrand said in an email.
He said mortgage affordability was at its best since the end of 2021, while resale condo sales were 25 percent below the 10-year average – both factors that would be attractive to buyers.
However, Hildebrand said there was concern that prices could fall further.
“For buyer confidence to improve, we need stronger economic conditions and less inventory pressure,” he said.
Still, Urbanation expects the condo outlook to adjust over the next few years.
“The condominium market is clearly depressed as it undergoes a difficult correction following excessive growth during the COVID-19 pandemic,” Hildebrand said. “However, the lack of activity today will certainly lead to a lack of supply in a few years and will help restart the engine of the market.”
• Email: gmvsuhanic@postmedia.com