Market Expected to Transition to More Balance Next Year as Prices in the Core Approach $1,000 PSF
TORONTO – October 31, 2017: Urbanation Inc., the leading source of information and analysis on the Toronto condominium market since 1981, released its Q3-2017 market results today.
A total of 4,577 new condo apartments were sold across the Greater Toronto Area in Q3-2017, a 30% decline from last year as fewer new projects came to market following an explosive first half that saw new launches more than double and sales soar by 67%. Unsold new condo inventory (across all stages of development) increased for the first time since Q4-2015, rising to 7,618 units after falling to a 15-year low of 6,699 in the previous quarter. Remaining inventory was down 38% year-over-year and was 47% below the 10-year average of 16,304 units.
Through the first nine months of 2017, a total of 26,453 new condo units were sold. An additional 12,000 units could be brought to market during the fourth quarter, which is projected to result in a new high for sales in 2017 estimated at 34,000 units — far surpassing last year’s record of just over 27,000 sales and the previous peak of approximately 26,000 sales in 2011. Amid record demand and plunging inventory, price growth for new condos continued to accelerate quickly. The price index for all sold units in development reached $670 psf (+13% annually), with remaining units in Q3-2017 priced at an average of $816 psf, rising by 5% from the previous quarter and 30% from a year ago. In the former City of Toronto, unsold inventory reached an average of $991 psf.
Market activity for new GTA condos in 2017 has reached an unsustainable pace and a slowdown in sales next year is highly likely, leading inventory levels to move up towards more historically normal levels and causing less upward pressure on pricing.
New condo apartment price growth has begun to diverge from recent resale market trends. Resale condo apartment prices averaged $648 psf in Q3-2017, edging down slightly from the previous quarter ($650 psf) for the first time in three-and-a-half years as sales declined 26% year-over-year following the Ontario Government’s Fair Housing Plan introduced earlier in the year. However, market conditions remained firm with a sales-to-listings ratio of 60% (a balanced market is between 35% and 50%), keeping resale condo prices 27% higher than a year ago — a deceleration from the 31% annual growth recorded in Q2-2017.
Part of the increased attractiveness of investing in new condos in 2017 has been the quick rise in rents, which has been impacted by a decline in supply. Average rents for condo apartments leased in Q3-2017 on the MLS system increased by 10% annually to $2.98 psf as condo completions fell to a four-year low of approximately 15,000 units during the past 12 months. However, with the number of condos under construction reaching a three-and-a-half year high of 54,715 units in Q3-2017, completions are projected to reach 20,000 units in 2018 and could surpass the previous high of 21,000 units in 2014, easing some pressure off the rental market.
At the same time, the recently announced stress test requirements for uninsured mortgage borrowers is likely to cause further declines in resale activity in early 2018, although the condo market is expected to remain relatively resilient due to its affordability advantage. New condo sales won’t be directly impacted by the new rules as pre-sale buyers were already required to qualify at posted mortgage rates. However, indirect effects caused by lower perceived investment returns should slow demand for new condos from current levels.
“After closing out 2017 with a record year, the new condo market is poised for moderation in 2018. A more cautious approach for both developers and buyers in the coming months will help to ensure the transition to a more sustainable pace of activity is orderly”, said Shaun Hildebrand, Urbanation’s Senior Vice President.