Sales of new condos in Toronto plunged in the first quarter of 2024 as a rising inventory of unsold units and soaring construction costs put a damper on the once booming market.

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Has the great Toronto condo boom finally hit a wall? Back to video

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A report from condominium research firm Urbanation this week showed sales of new condo units in The Greater Toronto and Hamilton Area (GTHA) reaching levels reminiscent of the late 1990s in the first three months of the year, with just 1,461 new condo units sold. That marked a decline of 85 per cent from the sales peak recorded in the first quarter of 2022 and a 71 per cent drop from the 10-year first-quarter average.

At the same time, construction slowed dramatically, with only 2,361 new condominium units beginning construction, down 52 per cent from last year.

With completions jumping to a record high of 12,132 units, the total number of condos now under construction is at its lowest level in more than two years at 91,590 units.

One of the factors contributing to the decline in sales was the pullback in new project launches by developers. Only four projects totalling 958 units were brought to market in the first quarter, well below the numbers in recent quarters.

Urbanation president Shaun Hildebrand said this cautious approach by developers is indicative of current market conditions.

“After two years of pre-construction sales trending down sharply, construction activity is being hit hard,” Hildebrand said in the report. “While anticipated reductions in interest rates in the second half of the year should lead to some improvement in market conditions for new condominiums, activity will likely remain subdued as the industry works it way through current inventory and digests the numerous government policies on housing recently released.”

Urbanation found that those elevated inventory levels were weighing on prices.

The average opening price for a new condo fell to $1,168 per square foot (psf) in the first quarter of 2024, down 12 per cent from the fourth quarter of 2023 and 17 per cent from the first quarter of last year. Unsold inventory across all stages of development remained high at 23,815 units, equal to 22.8 months of supply.

Market dynamics differed between the City of Toronto and the 905 region, in terms of unsold inventory and asking prices. In Toronto, unsold new condo inventory was equal to 30.6 months of supply, while in the 905 region, supply was equal to 16.8 months. Asking prices for unsold units in the 905 region continued to rise, increasing two per cent annually to an average of $1,161 psf. In contrast, prices for remaining inventory in Toronto decreased four per cent year-over-year to an average of $1,522 psf. Overall, asking prices for unsold units in the GTHA declined three per cent annually to an average of $1,373 psf.

Looking ahead, a total of 17,076 units across 56 projects have released marketing materials for an upcoming launch over the next few quarters, with 70 per cent of units located in the 905 region. However, the market remains uncertain, with 60 projects totalling 21,505 units in the GTHA having put their launch plans on hold indefinitely since the market began slowing in 2022.

Hildebrand noted that the construction in Toronto is especially constrained.

“The market for new condo development in Toronto is in a difficult situation at the moment. In many cases, the costs to develop a new condo project exceed achievable prices in today’s market,” he said.

Hildebrand said that while demand is strongest for units priced below $1,300 per square foot (psf), this price point isn’t economically viable for developing downtown projects. As a result, developers are struggling to align pricing with market demand, leading to high unsold inventory and a scarcity of new projects available for presale. To mitigate this issue, developers are offering incentives rather than significantly lowering prices, as high costs are limiting their ability to adjust pricing downward.

According to Urbanation, some incentives include reduced or free parking, reduced development levies, reduced deposits, rental guarantees, and mortgage assistance programs.

Hildebrand said the incentives across the GTHA have had limited success, however “developers have launched some projects closer to $1,000 psf in the suburbs that have generated strong sales, they are few and far between as the math remains difficult.”

The absorption rate for pre-construction projects in the first quarter of 2024 fell to 50 per cent, well below the typical construction financing requirements of at least 70 per cent.

Hildebrand estimates that the drop-off in pre-sales and starts will cause a sharp decline in supply in a few years.

Current completions are at an “annualized pace of less than 10,000 units — a remarkably low figure when compared to the nearly 30,000 units that started construction in 2022 and population growth in the GTHA of over 200,000 in the past year,” Hildebrand said.

• Email: shcampbell@postmedia.com

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