Condo sales have slowed down in the Greater Toronto Area, and it might be due to an unwitting collaboration between homebuyers and condo developers — both of whom are trying to be cautious after last year’s condo boom.
Fewer people bought newly completed condos in the second quarter of 2018 compared to the same time last year, according to a report released Tuesday by Urbanation, which tracks condo activity in the GTA. Only 4,977 units sold in the spring and early summer — a 57% drop from the second quarter of 2017.
Resales have also slowed compared to last year. Urbanation said that 6,019 older condo units were resold in the second quarter — or 17% less than the number sold last year. Despite the year-over-year slowdown, though, resale activity is still 5% higher than the ten-year average for second quarter sales.
This slowdown in sales occurred against a backdrop of enormous growth in the condo sector. The number of condo construction starts in the GTA — or condos that have started to be built — reached a record high of 7,981 in the second quarter.
Meanwhile, the number of condo units that were in construction stood at 63,904. Ninety-five percent of those units were pre-sold.
Urbanation thinks that pre-construction buyers in particular are hesitant to buy right now, because it’s too soon after the sharp increases in condo prices last year. High prices may also be deterring non-pre-construction buyers, and the higher mortgage qualification rates introduced via OSFI’s “stress test” rules, which were introduced on Jan. 1., are probably not helping matters.
The number of pre-construction units that stayed unsold moved up to 9,341 units in the second quarter — the highest level in six quarters.
But, while buyers played a major role in the condo slowdown, developers weren’t exactly hands-off. Urbanation says that developers have been deliberately trying to keep condo inventory low in the GTA, by cutting back the number of newly completed condos on the market. New openings declined by 51% in the second quarter of 2018, compared to the same time in 2017. The low supply of condos may have made it harder for people who were willing to buy to lock down a home.
By regulating the number of condos on the market, developers are hoping to keep prices steadily growing — instead of dropping due to a surplus in supply.
And, it seems to be working. The slowdown in sales hasn’t kept prices from increasing year-over-year. The average price per square foot stood at $835 in the second quarter — up 18% compared to last year.
But, these prices are lower than they were in the last quarter of 2017, when they reached a high of $954 per square foot as people rushed to buy before the stress test rules kicked in.