After years of outpacing resale homes in price gains and sales, Toronto’s condo market has started to cool.
The COVID-19 health crisis and accelerated rise in telecommuting have redefined what people want in a home, which includes not just more square footage but private space away from the potential risk of shared facilities in buildings. This has resulted in an increase in supply as more condo dwellers put their units up for sale and fewer buyers look to snap them up.
Months of inventory at the end of September was 3.1 for the Greater Toronto Area (GTA). In Toronto, it was 3.5. Greater supply can be found in the downtown area, with 4.2 months of inventory recorded at the end of last month. The east and west ends of the city are still considered sellers’ markets, with 2.1 and 2.5 months of inventory, respectively. However, to put it in perspective, supply in these two areas was just one month’s worth at the outset of the pandemic.
Months of inventory is the amount of time it would take to sell all existing listings if no new properties came on market. It’s a seller’s market if there is less than four months of inventory, and a buyer’s market if there is more than six. The market is considered balanced when there is four to six months of inventory.
With more options to choose from across the city and less competition, prices are stabilizing. GTA condo prices increased 6.6% year-over-year in September, but the average cost is still more than $30,000 short of the pre-pandemic high of $666,358. Monthly gains have been moderate since the Ontario government began to ease lockdown measures in June. This trend is expected to continue throughout the remainder of 2020, making it an ideal opportunity to purchase a condo if you’re a first-time homebuyer or planning to downsize.
But if considering a condo as an investment property, now might not be the right time if you want to turn an immediate profit. Many former short-term rentals that once occupied Airbnb and similar platforms have migrated to longer-term leases as tourism and business travel has dried up. This explosion of listings, combined with the slowdown of immigration that makes up a significant portion of the rental pool, has negatively impacted rent prices, pushing them down.
The average one-bedroom condo apartment rent was $2,012 in Q3 2020, down 11.1% from Q3 2019. The average two-bedroom rent was $2,672, representing a 9.2% drop from the same period last year.
Rental rates may remain at lower than expected levels for some time given the number of brand new condo units — approximately 20,000 — that are set to enter the market by the end of the year. (Most units will end up on the rental market simply because the majority of new condos are pre-sold to investors.)
However, these conditions will not last forever. As real estate tends to be the most stable part of the economy, typically doubling in value every 10 years, purchasing a condo for investment purposes during this ‘lull in prices’ may be a good move so long as you’re in it for the long haul.