Crisis could push condo prices down at steepest rate since 2008

Lack of office workers, students has landlords competing for tenants

Downtown Toronto condos are now renting within about $50 of other parts of the GTA, which could play into the potential of double-digit sales price declines in the core in the first quarter of next year, says Shaun Hildebrand, president of market research firm Urbanation.

A glut of re-sale listings and pre-construction projects are hitting the market at a time when there are fewer tenants in ww the core, and a price correction tt is likely but won’t necessarily be prolonged if the pandemic fades as a health and economic concern, he said on Wednesday.

“This is a prime example of how COVID is causing market distortions,” said Hildebrand. “This tells you the market is pricing in no premium for downtown living right now, which is understandable given ww what’s happening.” w

A lack of immigrants, postsecondary students and office workers, who normally rent downtown, means landlords are now competing for tenants. aa It’s a dramatic turnaround from a few months ago when renters were the ones bidding up the monthly cost of downtown leases.

The average third-quarter rent downtown was $2,283. In the rest of the region, it was $2,229. Normally the difference is closer to $400, said Hildebrand.

Urbanation reported a fourth straight month of downtown rent declines in August – an annual drop of 9.5 per cent that was the steepest since 2010.

Although sales rose 11 per cent year over year that month as yyt he pent-up demand from the COVID shutdown bled into ttt he summer, condo sales actually declined 28 per cent year over year in the period of April through August — a 14- AA year low. y

After years of rapid growth, downtown condo selling prices have been flat since June as inventory has flooded the market, vv said Hildebrand.

“The sales to new listings ratio is 24 per cent.

“That’s way below the 40 per cent lower threshold of a balanced market. There is five months of inventory on the market and it’s climbing very fast,” he said.

“Even if the price continued to remain at its September level right through into the first quarter of next year, when you qq looked at what the price level was compared to March 2020, ww you would be seeing an 11 per yy cent year over year decline,” said Hildebrand, who cited a large number of condo completions in the next six months, as well as a spike in listings.

What’s more likely, he said, is a stronger year over year decline in the first quarter of 2021. “We haven’t seen a doubledigit decline in condo prices since the 2008-2009 recession. Even then it only lasted a few months,” he said.

Falling prices could prompt investors, who own more than half of the units downtown and have seen prices rise 64 per cent over the last five years, sell off oo those apartments, particularly tt if rents aren’t covering their holding costs.

That could ripple across the region and into ground-related homes if condo owners can’t sell and move up the property ladder, said Hildebrand.

“We’re not saying this is going to be a long-lived correction. It could be that it turns out to be a good buying opportunity as we see a dip in the market in the next six months,” he said.

If there is a COVID vaccine and people return to the down- aa town, demand could pick up and prices could rise again toward the summer, especially in wwa low-interest rate environment, he said.

The injection of supply in the market will, however, continue to be a challenge, he added.