Toronto Condo Market Deluged With Listings, In A Bad Sign For Investors

Toronto city skyline, Ontario, Canada

If you’re looking to buy a condo in Toronto these days, you’ll be glad to hear you will have more to choose from than buyers ever had before. And there won’t be any need for bidding wars.

But that might not be music to the ears of the city’s many investor-owners, who could see the value of their investments drop in the months ahead.

With the COVID-19 pandemic severely reducing the demand for rental housing in cities, and all but killing off Airbnb rentals, Toronto’s supply of condos for sale has shot up to record highs over the past few months.

The number of resale condos available in the City of Toronto more than quadrupled from around 1,500 before the pandemic to 6,455 in mid-October, the highest number ever recorded in the market. It has been climbing steeply upward from week to week.

Here's your totals for today, a new all-time condo record (again). Here's week-over-week growth in condo listings for Simcoe Day, Labour Day, Thanksgiving:
2019: ⬇️5.8%, 0.0%, ⬇️1.7%
2020: ⬆️2.0%, ⬆️3.3%, ⬆️3.4%
So, different directions this year than prior. /3 pic.twitter.com/aLFUf2TFo2

— Scott Ingram CPA, CA (@areacode416) October 13, 2020

“I don’t know when this is going to stop. As long as it keeps going up, things are going to keep softening,” said Scott Ingram, a Toronto real estate agent with Century21, who flagged the new numbers in a Tweet this week.

Ingram says the softening is concentrated particularly within the City of Toronto’s downtown core, while the outlying 905 region isn’t seeing quite the same supply shock. That makes sense, given that the downtown core is the most popular area for Airbnb rentals, as well as for students ― two parts of the market that have been hit particularly hard.

And that doesn’t include newly-built condos, which are set to hit the market in record numbers over the next few years. The area has had a record of nearly 80,000 condo units under construction over the past year, according to analysts at Urbanation.

Watch: Why COVID-19 hasn’t killed Canadian real estate. Story continues below.

 

Toronto had more cranes in the sky in the third quarter of this year than New York, L.A., Chicago and San Francisco combined, according to a recent survey from consultancy RLB.

There were 124 cranes in Toronto, compared to 12 in New York, 41 in Los Angeles and 43 in Seattle, which has the second-highest count on the list.

Toronto isn’t the only place where the supply of condos is soaring, though other cities aren’t seeing it to the same extent. Vancouver’s active listings were up 44 per cent in September, compared to a year earlier, while listings in Montreal grew a relatively modest 8 per cent.

Single-family home supply shrinking

That’s a far cry from what’s happening with single family homes, where the supply has been shrinking across the country and prices have been soaring at double-digit rates.

Amid the ingoing pandemic, homebuyers are turning away from high-density inner-city housing towards suburbs and outlying areas. And those who already own homes in these areas don’t want to give them up.

The supply of detached homes fell by nearly 27 per cent in Toronto in September, compared to a year earlier. Active listings were down 34 per cent in Montreal, though in Vancouver they rose 18 per cent.

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One factor to consider, “which has no historical precedent, is the value of one’s home during this time. Home has been our workplace, our kids’ schools, the gym, the park and more. Personal space is more important than ever,” said Shaun Cathcart, chief economist at the Canadian Real Estate Association (CREA), in a report Thursday.

The tight supply ― combined with pent-up demand from the lockdowns and record-low interest rates ― has sent house prices soaring, with the average resale price of a home in Canada up 17.5 per cent from a year ago, CREA reported on Thursday.

But the real estate economists say this can’t last, and the forecasts for the condo sector in particular are turning gloomy.

Toronto condo prices to turn down: Re/Max

In a report this week, real estate agency Re/Max declared that Toronto “condo prices, as well as rents, are expected to decline in the coming months.”

It pointed the finger at the “collapse” of the Airbnb market, which has convinced many owners to either sell their units or rent them out in the long-term rental market ― where rents have been falling precipitously in recent months in most large cities in Canada.

“Demand may be rising, but the supply could overwhelm consumer trends,” Re/Max said.

“Rental rates falling are a major reason why supply is growing,” Ingram told HuffPost Canada. “You’ve got some investors cashing out, and to double down, you’ve got fewer investors who’ve been snapping these things up.”

Ingram noted that, in recent years, many condo investors accepted negative cash flow (rents that didn’t cover their costs) because they expected price appreciation on their condos. Now many are beginning to realize that might not happen.

“Now that price appreciation isn’t there it’s a different ballgame,” he said.

“(Investors are) saying, ‘Oh wait a sec, there’s some risk in there.’... The risk is up in peoples’ faces a lot more now.”


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