The Greater Toronto Area (GTA) has seen a lackluster beginning to the year in terms of new condo sales, according to a report by Urbanation, a Toronto-based research and consulting firm. The report highlights a significant decrease of 59% in new condo unit sales in the first half of 2023 compared to the same period in 2022. This decline is further emphasized by the fact that combined sales for the first and second quarters were 42% below the 10-year average for the first half of the year, making it the slowest start to the year since 2013.
Lowest Level of New Condo Sales in Over a Decade
Shaun Hildebrand, President of Urbanation, points out that the 12-month running total for new condo sales in the GTA has fallen to its lowest level since 2009. Although there was a notable increase in new condo sales in the second quarter of 2023, with 4,610 units sold, this still represented a 35% decrease compared to the previous year and was 28% below the 10-year average for the second quarter.
GTA New Condo Sales
However, despite the overall sluggish sales, the second quarter saw a surge in sales due to the launch of 27 new projects, accounting for a total of 7,349 individual units. While this unit count was 27% lower than the previous year, it was in line with the 10-year average. Despite the success of some new projects in selling the majority of their units, the overall performance of new launches in Q2-2023 remained tepid. The report attributes this tepid performance to buyer concerns over the market outlook, particularly with the Bank of Canada resuming interest rate increases in June.
Impact on Prices and Affordability
The sluggish sales in the GTA’s new condo market have resulted in a decline in prices. Urbanation’s report reveals that new condo prices decreased by 1.3% in the second quarter of 2023 compared to the previous quarter, and by 2.2% year over year, bringing the average price per square foot (psf) to $1,411. This marks the first price decline for GTA new condos in 10 years, indicating a weakening demand among potential buyers.
To entice buyers, many condo projects have continued to offer incentives such as cash back or credits on closing, mortgage rate guarantees, and free or reduced parking, locker, and unit upgrades. With the additional interest rate hikes in June and July, buyers are gravitating towards lower-priced projects. In the second quarter of 2023, the 905 region accounted for 60% of new condo sales in the GTA, while the former City of Toronto, where prices are approximately 30% higher, comprised only 14% of sales.
The average sold price for new launches in the second quarter reached a seven-quarter low of $1,236 psf, representing an 8% annual decrease and a 13% decline compared to projects launched in the first quarter of 2022.
Supply and Construction Challenges
In addition to affordability-related challenges, the GTA’s condo sector is facing significant resource constraints. The number of construction starts has exceeded the capacity to deliver new units, resulting in a record-high number of condos under construction. Over the last four quarters, there have been 27,537 construction starts, while only 17,117 units have been completed, pushing the total number of condos under construction to 102,448 units.
Urbanation warns that the decline in new launch absorption rates and the resource constraints in construction may lead to future supply shortages if the current slowdown in presale activity continues. The extent of these potential shortages will depend on how long the market slowdown persists.
The first half of 2023 has seen a sluggish start for new condo sales in the GTA. Decreased sales in the first and second quarters, coupled with a decline in prices, have raised concerns about the market’s outlook. However, the surge in sales during the second quarter, driven by new project launches, offers some optimism for the future. To address affordability concerns, developers have been offering incentives to attract buyers. The GTA’s condo sector also faces challenges in terms of supply shortages and resource constraints in construction. The impact of these challenges on the market will depend on the duration of the current slowdown in presale activity.