Cooldown phase for condo market

Caution among buyers leads to sales dropping by more than half

The Toronto region’s hot condo market is taking a breather that could see a little more room in the “scorching hot” Toronto rental market in the next couple of years, says the director of market research for Urbana- tion, a company that tracks development activity.

Pauline Lierman said the slowdown — 56 per cent fewer sales in the second quarter compared to last year — was to be expected after last year’s extraordinary number of project launches.

“I’ve been through a number of peak market cycles over the last 15 to 16 years,” she said.

“After every cycle where we hit like we did last year … there’s always a slowdown because a lot of it is ramped-up acceleration.”

Last year projects launched “boom, boom, boom,” Lierman said.

“Because the market was so hot, everything would sell out within an insane period,” she said.

“(Developments) moved forward that may not have come to the market until earlier this year.”

Urbanation’s second-quarter report, released Tuesday, also notes that pre-construction condo buyers have become more cautious following the sharp run-up in prices last year. Fifty-six per cent of the 5,759 units that came on the market in the second quarter were sold, compared to 80 per cent of the 9,521 units that moved in the second quarter of 2017.

Prices for newly launched projects were up 18 per cent year over year, averaging $835 per square foot, but still down from last year’s fourth-quarter high of $954.

“There’s always a slowdown because a lot of it is ramped-up acceleration.” PAULINE LIERMAN URBANATION

While the number of resale condo sales was down 17 per cent in the second quarter, prices increased 5 per cent on average — a substantially lower rate of growth compared to 30 per cent in the same period last year.

Prices are continuing to grow, however, because of a supply shortage that has seen fewer listings year over year for 10 quarters in a row, said Urbanation.

While job growth remains strong in the Toronto region, developers are working against a background of higher mortgage rates and rising labour and material costs, Lierman said.

Builders are also preparing their next round of projects in a new environment.

This is due to the old Ontario Municipal Board transitioning to the new Local Planning Appeal Tribunal system.

“You add all those together and you see a bit of a slowdown in terms of bringing stuff to market,” Lierman said.

She said she expects to see the next influx of completions in 2019 into early 2020, and those will add rentals to the market because so many new developments are bought up by investors rather than end-users.

“I can see things starting to ease off in the heightened level of constraint that we’ve had in terms of supply, in terms of rent growth. There’s going to be more out there,” she said.

“There’s only so much price growth the market can bear, whether you’re an investor or you’re an end-user.”

Renters have to figure out what they can pay and investors have to figure out whether they can achieve the rent that will cover their costs.