Welcome to this month’s installment of Dear Urbaneer, where I answer real estate questions from my inquisitive readers and clients. This time, I am counselling a condominium owner, who is considering selling but wants more information on what is going on in the condominium market. 

 Dear Urbaneer: 

I am thinking about selling my condo and relocating to the east coast. However, I am seeing a lot of  listings in my area sit on the market, and the media posting a lot about the over-supply currently of Toronto condos. Is this true, and how should that factor into my decision to sell? 

Signed, 

What Is HAPPENING? 

Dear Happening: 

This is a very timely question, as there are a lot of factors at play both in Toronto’s condominium and freehold housing markets. It’s important to analyze them individually to better inform your strategy. To help you out, here is last month’s Dear Urbaneer called Has The Toronto Real Estate Market Gone SLO MO? that examines the dynamics of the freehold market in the original City of Toronto.

As a condominium owner, whether or not now is the right time to sell ultimately has to do with your motivation.  Just over a year ago I explored Which Property Owners Are Selling Their Toronto Real Estate? and the motivations now are much the same. Property owners are typically selling because they are financially over-extended, their mortgage payments will not be sustainable when their renewal date comes, or life circumstances such as a relocation, change in household status, or the requirements of a growing family require a move.

With respect to supply, there are an enormous number of condominium units on the market right now. For example, to give you a fairly identifiable geography, in the central core the 2 MLS Districts known as C01 & C08 are situated within the boundaries of Bloor Street south to Lake Ontario & from the Dufferin Street (more or less – it’s an irregular shape that follows the curve of Dundas Street West from Bloor to Dufferin) east to the Don River, there are a total of 2466 condominium units listed on MLS. Of these, about 59% or 1450 listings are mostly 600 square feet or smaller in a studio, 1bed or 1+1bed layout, with the exceptions being older buildings where you can get twice as much square footage (albeit with 80s or 90s features such as wall-to-wall broadloom, popcorn ceilings and almond formica cabinetry with oak trim!). Take The Lexington at 45 Carlton Street, for example, which is a 19-storey 343-unit complex completed in 1981 in a concrete and glass Brutalist style that is so utopian and utilitarian in its placelessness I grudgingly like it! (Pictured below.) Recently, a 1300sf 2bed 2bath suite with deeded parking in The Lexington sold as a ‘blank canvas ready to make your own’ for $485 per square foot (that’s just over $625,000). The monthly common fee was just under $1200,  which covers heating/cooling, hydro, water, building insurance, parking, and amenities that include an indoor pool.

In contrast to the large number of listings available, during the month of August only 303 condominium units sold in the same two MLS Districts. Sixty-four percent sold for $700,000 or less, 27% sold between $700,001 and $1,000,000, and the remaining 9% sold from $1,000,000 to $3,000,000. The data shows that in these two MLS Districts, only 1 in 10 condos secured a Buyer in August. 

Incidentally, of the 28 units that sold anywhere from $1,000,000 to $3,000,000, things did not end well for one-third of the Sellers. Eight of 27 Sellers (one unit was in a building still to be registered so it wasn’t possible to determine if the Buyer was making or losing money) lost sums ranging from $55,000 to $425,000 after accounting for their buying, renovating (if any) and selling costs (with an average loss of $191,000) while 1 Seller vacated their property under Power of Sale proceedings. The Sellers who lost money had purchased as recently as March 2024 and as long ago as May 2018 (6 years 3 months ago). Furthermore, the average number of days for these units to sell was 119 days.

It’s important to note that our shifting housing market in the Greater Toronto Area – which is home to 6.4 million residents – is not limited to just supply and demand, but also the residual impact of interest rate shock, the gap between prices and local incomes, and the exodus of global capital that has been a driving force in Toronto for over 2 decades.  

Let’s take a look at the influences affecting the Toronto condominium market. 

The State Of The Condominium Market In Toronto 

The press, pundits and analysts are not mincing words regarding the Toronto condominium market. 

This report from Urbanation and CIBC –> “GTA Condo Investment Report : Challenging Times”  says that the condo market has landed in “recessionary territory”.  

The report outlines that Toronto continues, as it has been for some time, a market with two (often opposing) storylines.  The low-rise condo and freehold market is in better shape (although having endured a general slowdown with higher interest rates), due to limited inventory, and continued demand.  Meanwhile, the high-rise point-tower condo market is in steep decline, due to a number of factors, including an overflow of inventory, and the fact that so many condos are investor-held. 

There Is Supply, But It Isn’t The Kind Buyers Want 

Smaller condos are flooding the marketplace but they’re usually not what Buyers want. What Buyers want to buy – think family-friendly condo in an urban village neighbourhood – are only just beginning to come within financial reach depending on the location. Meanwhile, the oversupply of units that Buyers don’t want are pushing prices down with force, such that all condominiums as a ‘housing type’ are being impacted.

Why? Because for over 2 decades new condominium housing has been focused directly on investor-friendly smaller units, with the majority purchased as rental investments by Mom & Pop investors, REITS, pension funds and global consortiums.

When the Bank of Canada began increasing interest rates in March 2022, holding an investment property in Toronto became a less and less attractive investment. Over the 15-month period interest rates escalated the Return On Investment eroded. And when interest rates held steady at 5% for nearly a year, it pretty much signaled to investors that Toronto’s Boom Times were over. The result? Investors began shedding units which was further compounded when the rental market began softening. Here’s a Financial Post piece that gives more insights called “Toronto Area Condo Market Rents Drop The Most In 15 Years“.

This Better Dwelling article “Over 4 In 5 Greater Toronto Leveraged Condo Investors Are Losing Money” looks at exactly how unfavourable the market is for condo investors because of the high-interest rate environment. But it’s not just limited to investors. In March 2024, I posted some alarming research – Over A Recent 90 Day Period, I Discovered 1 In 4 Sellers Of Downtown Toronto Lofts Lost Money – and just yesterday I posted: For Loft Sellers In MLS District E01, Nearly 1 in 5 Took A Financial Hit When Selling This Year. And, well, I certainly didn’t anticipate I’d find that one-third of Sellers of condos over $1mil to sell in MLS C01 & C08 this month of August would be incurring an average loss of nearly $200,000. Clearly no one is immune to our shifting market.

If you’re a follower of my blog, you know I’ve been concerned for as long as I’ve been writing this blog about the explosion of ubiquitous towers in the sky sold primarily to local and international investors, and the risk to End Users. The risk when purchasing any condo is that one’s property value can be set by the most desperate of Sellers. After a 2-decade long Seller’s market the script has flipped. It’s become a Buyer’s market because the number of desperate Sellers is becoming amplified. It ultimately circles back to Seller motivation, and how that ultimately impacts values – and further – price slashing.  

Although I have always believed the best way to preserve your investment in the condo market is to buy something with an intelligent space plan, good scale & proportions, and generous outdoor space in a walkable urban village location, market conditions can deteriorate to such an extent it bludgeons an entire housing type. In this case, it’s the condominium – whether it’s in a low-rise, a high-rise, a townhome, or a penthouse – as times get dire as they are now, you may be facing a financial loss if you bought in the past 5 years. Unfortunately, there are many Sellers who are not going to fare well saying farewell to their property.

The dangers of commodifying residential real estate – which is when housing is valued as an asset rather than shelter – are significant. In 2013 I felt a foreboding sense of doom when I watched the CBC documentary called The Condo Game (still a must-see in my opinion); in 2016 I posted about the growth of purpose-built rentals in A Shift In Toronto Real Estate Property Investors Should Note; in 2019 I wrote about the must-watch ‘‘PUSH’: A Documentary On Rising Real Estate Prices and more recently, in 2021, I explored The Growing Trend Of Financial Landlords In Toronto Real Estate.

When real estate becomes primarily an investment vehicle and geared for an investor rather than an end user there is a much higher possibility for volatility in the market. And what pains me the most is that the two largest Buyer profiles of small condos are investors and first-time Buyers. Investors – including the Mom & Pops who own a primary residence – are perceived to be capable of weathering financial storms. But first-time Buyers are our most vulnerable – particularly single-income Buyers with a low down payment and high-ratio financing, and no help from the Bank of Mom & Dad – because they’re at the whims of the larger Buyer Profile. Did you know for 8 years investors – according to Better Dwelling’s “Have Bought Up To 100% of Newly Constructed Condos In Canadian Cities“?

This article from the Globe and Mail called “The Dark Side Of Investor-Driven Housing” talks about the inherent market vulnerabilities that come with an investor-heavy housing market. 

However, for end-users looking to buy, having investors exit the market is ultimately good news. With investors divesting themselves, and global capital consortiums putting their bets on emerging markets instead of Toronto, they have more choice and are paying less. This article from Better Dwelling “Canadian Families Captured Bigger Share of New Housing As Rates Climbed” discusses a dynamic that my own research found: High-Ratio Homebuyers Took Advantage Of Price Moderation In Toronto Real Estate.

A Market Snapshot 

Despite the fact that our housing crisis is real, rising interest rates effectively crushed the new home market. According to this article in the Toronto Star Toronto Area New Home Sales Continue To Plummet, Hit All-Time Low In July, “Sales of new builds are down 70 per cent below the 10-year average, according to BILD”. This article provides more background on the stats, as well as what this means for new construction inventories and development but the takeaway is that the pre-construction condominium market is suffering its challenges – including a sharp decline in income for all the professions and trades who earn their living serving the new homes industry. Furthermore, two weeks ago the Globe & Mail published this piece: “Real Estate Insolvencies In Canada Set To Surpass Levels Of Global Financial Crisis” which, if it occurs, could be catastrophic for the construction industry as well as any Buyers with deposits. Under the Tarion New Home Warranty, for freehold homes with a sale price of $600,000 or less, Tarion will cover up to a maximum of $60,000. For freehold homes with a sale price over $600,000, Tarion will cover 10% of the purchase price to a maximum of $100,000. For new condominium units, Tarion insures the first $20,000 of the purchaser’s deposit.

However, as a Seller it is the data and stats of the resale housing market that typically acts as a barometer as to where the market is going, in part because more local Buyers purchase resale housing than buy new. 

According to TRREB’s Q2 2024  condo report, condo sales dropped 19.8 percent, year-over-year, while new listings were up by 36.5 per cent year-over-year. This means there is a lot of standing inventory which impacts prices, and may continue to do so, as more inventories accumulate. According to TRREB’s most recent monthly data, condo prices dropped 2.2 percent, year over year in July.  However, it is my opinion that if boomers are buying the larger higher-priced condos and no one is buying anything smaller than a 2-bedroom unit then the data is skewing to appear like the prices are more stable than they are.

There Is So Much Supply, Why Are We Still Short Housing? 

Toronto’s housing market is a bit contradictory as well, as it is well-known that we are in a housing crisis, and that it is expected to worsen, given the anticipated population growth in the coming years. This Toronto Star article called “Why Toronto’s Stalled Condo Market Will Make The City’s Housing Shortage Even Worse” explains how an oversupply of housing inventory listed for resale actually hurts the supply of new housing. 

This – in short – is because no market operates in a vacuum. When the resale market is flooded with units for purchase resulting in a drop in sale prices, at a certain point the gap between resale values and new construction prices becomes too great resulting in the stalling of the new construction market. Although most Buyers – whether they be end-users or investors – are willing to pay a premium to purchase a new build from a developer because of its newness, the amount of that premium is still subject to vary depending on the market conditions at the time of purchase.  For example, when a real estate market is on fire, investors will purchase and rent a unit in negative carry because the market value of the property is increasing by a greater amount than the debt they’re floating. But when that is no longer happening, that segment of the market – which is considerable given 81% of investor-rented condos in Toronto are cash flow negative – evaporates and only the investors focused on Cap Rates remain active in the market. Unfortunately for developers, Cap Rate motivated investors are shifting their attention to less expensive resale units (albeit completed after November 15th, 2018 so it isn’t subject to Rent Control) because the returns are better.

The result is new development projects are no longer attracting their core Buyer profile. 

Additionally, with higher interest rates and escalating development fees – for example, the development costs charged by the City of Toronto for a one-bedroom condo have gone from $37,081 in August 2023, to $44,774 in May 2024, to $52,676 in June 2024 – it’s challenging for a developer to get their pro forma profitable. As the Toronto Star article points out, “It’s the worst time for a whole bunch of the wrong product to be coming to the market,” meaning that the lack of product geared for investors now will impact the future creation of the product end users want to buy.

This will deepen our housing crisis.

The Impact Of Interest Rate Cuts 

Although there have been interest rate cuts, and Stats Canada shows that inflation fell closer to the sweet spot at 2.5 percent, increasingly the likelihood of another rate cut coming at the next BOC meeting scheduled for September 4th, 2024, the consensus from analysts and pundits is that for meaningful movement in the market to spur Buyers from the sidelines to start absorbing that inventory, rate cuts need to be more significant.  

This article from CP 24, “‘Mounting Condo Inventories’ Could Put Downward Pressure On Toronto’s Real Estate Market: Report” references Toronto’s sluggish condominium market, but also expresses concern around how this significant downward pressure could impact the Toronto real estate market as a whole. 

“Affordable” is both an actual and perceived term, and it is impacting Buyer activity, as Buyers sit on the sidelines, waiting for a – prices to fall further and b – a more significant rate cut (or series of cuts) to give their purchasing power more leeway. Let’s not forget that the fundamental problem in Toronto and many other Canadian cities is that the income of the local population doesn’t align with the prices of property. Moneysense recently published “How Much Income Do I Need To Qualify For A Mortgage In Canada?“ stating a Toronto household needs to make over $200,000 a year to purchase a property of $1,110,000 with 20% down at our current interest rates. First, the average Toronto household income is around $58,000 a year. Second, anyone familiar with Toronto real estate prices knows that a $1.1 million dollar budget won’t secure a family-friendly freehold dwelling in the original City of Toronto that doesn’t require additional capital improvements.

Meanwhile, as Buyers sit and wait, the inventory keeps piling into the market, meaning that this imbalance between supply and demand persists. 

What’s Happening In The Real Estate Trenches? 

The reality is, as condominiums continue to flood the market and the most motivated reduce their prices, all Sellers are having to re-align their expectations.  Because of this, some units are not garnering the sums some Sellers paid when the market was hot. In fact, many Sellers are taking a financial loss. 

In March 2024  I posted –> Over A Recent 90 Day Period, I Discovered 1 In 4 Sellers Of Downtown Toronto Lofts Lost Money (one by as much as $335,000) and yesterday I posted –> For Loft Sellers In MLS District E01, Nearly 1 in 5 Took A Financial Hit When Selling This Year. This article on CP24, “Toronto condo sells at $320,000 loss amid condo market woes” looks at how one Seller took a pretty significant hit to unload their condominium in the Entertainment District, purchased in the pandemic real estate heyday of 2021. As you’ll read, the bleeding is already underway. 

While losses may not necessarily be as steep as some of the more shocking sales we see in the media, it underscores a point- that the motivation of a Seller factors into pricing as well. Sellers who must sell because of financial factors, or who are working against a tight timeline for whatever reason, are reducing their asking prices substantially to trigger a sale. The result is that once that property sells at the discounted sum, any similar product that remains listed for sale at the higher price is considered over-priced. This is another reason why there are so many condominiums listed for sale that aren’t selling. Their asking prices don’t align with the selling prices at all, and are considered so unrealistic Buyers aren’t even viewing these listings, letting alone submitting offers on them.

This is something a lot of property owners don’t fully consider. Many Sellers say they don’t want to take a loss (perceived or real) so they’ll wait for the market to recover. I understand this point of view but if they’re wanting to sell their existing residence in order to purchase another property, the issue isn’t about profit or loss but about making the numbers work. In a declining market a lot of owners will take a loss on their current dwelling in order to secure a residence that has been discounted more substantially for whatever reason. It isn’t about waiting for their own property to reach its previous high point to make a move, but about finding the right opportunity to move into the next chapter of life.

Further to this, some Sellers should note that many investors are extracting their capital from real estate at a loss to reinvest it in an alternate non-real-estate investment vehicle that is performing substantially better. These investors redirect their capital as part of a strategy to recoup their losses faster. This may be an option some Sellers should consider.

Another factor is that rents are falling. In this Globe & Mail article “Rent Is Falling In Toronto? The Housing Market Shows Its Supply Side“, it states “The average cost to rent a one-bedroom is $2,443, down 6 percent from a year ago, according to Urbanation and rentals.ca while a two-bedroom is $3,193, down 5 percent”.  Further to this, the vacancy rate is climbing. 

 We recently sold a Soft Loft in Leslieville that had previously been tenanted. When the property was first listed in May, the number of similar condominiums for sale in proximity to it soared by 28% during the first two weeks and remained high throughout the listing period. Also telling was that nearly 70% of those listings were currently or imminently vacant. This high concentration of vacant units was historically unusual, but with so many new building completions – both purpose-built rental and condos purchased as investments – outpacing the number of prospective tenants willing to pay the rental premiums associated with newer condos, investors were listing their units both for sale and rent. With no tenants forthcoming, the motivation of Seller-Investors increased, and values began to cascade downward as Investors began liquidating. In my opinion, we’re still in the early days of how substantial a price drop we may see, but this post For Loft Sellers In MLS District E01, Nearly 1 in 5 Took A Financial Hit When Selling This Year tells the story in more detail.   

Keep This In Mind: The Market Is Cyclical And Always Changing

Back to your original question, about the timing to sell your unit….

Whether or not you are selling your condominium currently really depends on your motivation. Are you required to sell because of the purchase of another home, relocation or other time-sensitive reason? If so, recognize that there are a lot of other properties on the market right now to compete with, so you’ll have to tailor your selling strategy accordingly – which likely includes competitive pricing. 

However, if you don’t need to move and you don’t need financial liquidity, you have the option of waiting until some of the current inventory has been absorbed. In fact, if this is your situation now is not the time to sell.

Again, I want to circle back and reiterate the demand for housing is still very much alive in Toronto, but the current conditions aren’t in line with the affordability requirements of many Buyers. In other words, if prices and interest rates were lower there would be a lot more sales. And this is not about Buyers being difficult. It’s about the misalignment between the incomes of the local market and real estate prices that skyrocketed because of insanely low interest rates during the pandemic, the massive inflow of global capital over a sustained period of time, and the speculative nature that accompanies a scorching hot housing market.  

 With an interest rate cut likely to come in the next few weeks, and more likely to come beyond that, conditions in the condominium market will eventually balance. In the interim it’s a tricky market, which is why having a sound, data-driven strategy when listing your property for sale is essential.

With decades of experience navigating the Toronto real estate market successfully, my team and I are here to help! 

Dear Urbaneer: Has The Toronto Real Estate Market Gone SLO MO?

Want to have someone on your side?

Since 1989, I’ve steered my career through a real estate market crash and burn; survived a slow painful cross-country recession; completed an M.E.S. graduate degree from York University called ‘Planning Housing Environments’; executed the concept, sales & marketing of multiple new condo and vintage loft conversions; and guided hundreds of clients through the purchase and sale of hundreds of freehold and condominium dwellings across the original City of Toronto. From a gritty port industrial city into a glittering post-industrial global centre, I’ve navigated the ebbs and flows of a property market as a consistent Top Producer. And I remain as passionate about it today as when I started.

We’d love to introduce our services to you.

Serving first and second-time Buyers, relocations, renovators, and those building their long-term property portfolios, our mandate is to help clients choose the property that will realize the highest future return on their investment while ensuring the property best serves their practical needs and their dream of “Home” during their ownership.

Are you considering selling? We welcome providing you with a comprehensive assessment free of charge, including determining your Buyer profile, ways to optimize your return on investment, and tailoring the listing process to suit your circumstances. Check out How Urbaneer Sold An East York Bungalow ‘Estate Sale’ For Redevelopment to learn more about what we do!

Consider letting the Urbaneer Team guide you through your Buying or Selling process, without pressure, or hassle.

We are here to help!

Thanks for reading!

-The Urbaneer Team

Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage – (416) 322-800

– we’re here to earn your trust, then your business –

Celebrating Thirty-Four Years As A Top-Producing Toronto Realtor

*Did you know we were recently listed as one of The Top 25 Toronto Real Estate Agents To Follow On Twitter! – The Top 50 Blogs On Toronto – and The Top 100 Real Estate Blogs In Canada? Consider signing up in the box below to receive our FREE monthly e-newsletter on housing, culture, and design including our love for unique urban homes and other Toronto real estate!

*Love Canadian Housing? Check out Steve’s University Student Mentorship site called Canadian Real Estate, Housing & Home which focuses on architecture, landscape, design, products, and real estate in Canada!