Toronto Real Estate Market Update: August 2024

The Toronto real estate market is undergoing significant changes, particularly in the condo sector, as reported by BMO Capital Markets. Recent assessments suggest that while the overall Canadian real estate market shows signs of stabilization, Toronto’s condo market is facing unique pressures, with a shift towards more buyer-friendly conditions.

Key Highlights:

1. Condo Market Saturation: Toronto’s condo market, long a hotspot for real estate activity, is now showing signs of saturation. Rising vacancy rates, coupled with overleveraged investors who are struggling to manage their properties, have put downward pressure on condo prices. The market for resale condos has slowed significantly, with fewer sales happening at current price levels. Investors and buyers are facing tighter financing conditions, making it harder to sell at the prices seen in previous years​.
2. Price Adjustments and Eroding Fundamentals: According to BMO economist Robert Kavcic, the price of a benchmark home in Canada has only dropped by about 4.2% from the previous year, but in Toronto, the fundamentals are eroding faster. This includes record office vacancies, a multi-year high in mortgage delinquencies, and rising residential vacancies in the city​. Despite the challenges, sellers have been holding out for better market conditions, but they may soon have to adjust their expectations.
3. Shifting Towards a Buyer’s Market: The Greater Toronto Area (GTA) is beginning to shift from a seller’s market to a more balanced or buyer’s market, especially in the condo sector. The sales-to-new-listing ratio in the GTA has dropped sharply, indicating that more listings are staying on the market without sales closing. The ratio is moving towards 45%, which is considered “buyer’s market” territory​.
4. Impact on Home Prices: The long-standing view of BMO Capital Markets is that Canadian home prices could see a peak-to-trough decline of 20% to 25% during this adjustment cycle. Although prices have already fallen by about 10%, the market correction could continue into 2024. The Toronto condo market, which has been one of the most overheated, is expected to face the brunt of this downturn​.
5. New Construction and Government Policies: While government initiatives, such as Ontario’s More Homes Built Faster Act, aim to increase housing supply, BMO remains skeptical about achieving these targets. Record-high job vacancies in the construction sector and longer lead times for multi-unit developments have delayed new completions, meaning that supply constraints will likely persist for the foreseeable future.
6. Investor Sentiment and Cap Rates: Investors are becoming increasingly cautious as rental yields (cap rates) struggle to keep up with rising borrowing costs. With bond yields rising, residential cap rates in Toronto, which typically range between 1.5% and 3.5%, are no longer attractive compared to other investment options. As a result, more speculative activity has slowed, and the real estate market is transitioning to more cash-flow-driven investments.

Looking Ahead:

The Toronto real estate market, particularly in the condo sector, is expected to continue softening in the coming months. Buyers might find more opportunities as prices adjust, and the market gradually shifts in their favor. However, potential investors should remain cautious as economic conditions remain uncertain, and the long-term impacts of higher interest rates and housing policies are still playing out.

For those considering entering the Toronto real estate market, it’s crucial to stay informed and work with experienced real estate professionals who understand the local market dynamics.

For further details and insights into the Toronto real estate market, visit Local Toronto.