Prices may be on the wane, but the same old issues are at play – meaning buyers are giving the sector a wide berth
Condo sales in the Greater Toronto Area (GTA) posted a mild uptick in March, climbing by 1.7% in a rare glimmer of good news for the beleaguered sector.
But prices continued to dip, falling by 9.1% year over year across the region with most of the market’s red flags still apparent even despite the slightly higher sales activity.
Prices were much lower across both the city centre and wider 905 area – and that means a condo is still seen by many buyers, whether investors or hopeful end users, as a toxic asset in Toronto, according to a mortgage broker based in the city.
Taz Zaide (pictured top) of 6ix Mortgage Group told Canadian Mortgage Professional that well-publicized appraisal issues, with buyers suddenly trying to get a mortgage for a property worth less than they agreed to pay, are continuing to drive people away from the condo space.
“Especially on the appraisal front, we’re finding that people are still bleeding on that end. So we don’t think the condo market will be reversing anytime soon,” he said. “And we haven’t seen that many people buying condos as of late.
“It looks like people are trying to steer away from them, knowing this as well. Most of our transactions have been anything but a condo.”
‘People would rather wait a little bit’
Sales in the semi-detached space fell by 6.9% last month, but detached home sales were up by 5.2% and townhouses recorded a 13.1% increase in sales in the city centre (despite falling by 1.7% across the whole GTA).
Calculations simply don’t make sense in the condo sector for buyers at present, Zaide said, even if other property types are becoming increasingly attractive because of lower prices.
In many cases, buyers are content not to jump right into the market, preferring to put away funds for a purchase that makes more sense than buying a condo in the long run.
“It’s interesting to see that people would rather wait a little bit and save up a bit more to buy something like a semi-detached or even a townhouse as opposed to a high-rise condo knowing that it may not be the best from an investment point of view,” Zaide said.
“When you think about it, most people only want this condo for the short term – maybe for three to five years until they get a family and then they’re forced to upsize. Looking at it from that timeframe, is it really realistic to assume that you’re going to make your money back or a little bit more in three to five years if you sell the condo? Unlikely, depending on where the market is at.”
Most buyers not budging on condo market
Falling condo prices have created some opportunities for buyers who were previously frozen out of the market, especially during the speculative boom years of the COVID-19 pandemic.
Many, however, are convinced that the purchase wouldn’t be a good one – and that it makes more sense to hold out for a longer-term investment and a bigger home.
“They’d rather just save up another $100,000 to $150,000 in purchasing power to be able to get something bigger than a condo,” Zaide said.
And that picture could take a while to change, with no indication that the number of international students or new immigrants – key demographics to rent condo units out to before the government turned off the taps – is about to ramp up soon.
Few condo market watchers are expecting the sector to collapse completely, mainly because overall housing inventory is still very low and condo construction has essentially ground to a halt, meaning some of the current excess inventory will eventually be snapped up.
But that’s by no means an imminent prospect – pointing to further softening ahead in the rental sector and even more declines in store for condo prices, according to Zaide.
“I personally think prices will continue to come down,” he said, “and that we likely won’t see a reversal for at least another two years.”
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