In the second half of 2022, new condo sales in the Greater Toronto Area (GTA) reached a 20-year low as market uncertainty increased and affordability decreased.
Just 5,419 new condo units were sold in the GTA between July and December 2022, a 68% yearly reduction, according to Urbanation's year-end Condominium Market Survey, as the "severe impact" of the Bank of Canada's interest rate hikes started to be felt. The amount is comparable to the lowest July-December sales sum in the previous 20 years, which was recorded during the 2008 financial crisis.
Despite a good start to the year, new condo sales in 2022, at 21,782 total units, fell 30% yearly from the nearly record-high level reached in 2021. Sales dropped 58% year over year in Q4.
Developers postponed several of the projects that were supposed to be released throughout the summer and fall as a result of consumers' hesitation. Only 7,669 units were brought to market in the second half of 2022, a 48% decrease from the first half of 2022, when 16,227 units were introduced for pre-sale.
Despite careful behaviour on the part of developers keeping the supply of unsold units in line with the 15-year average, the supply of unsold new condo units rose 30% year over year in Q4 2022.
Although there was some price adjustment as a result of the market slowdown, Urbanation highlighted that the high development costs prevented any sizable drops.
In Q4 2022, the average asking price for unsold new condos decreased 1% from quarter to quarter to $1,427 per square foot, while the average opening price for new launches decreased 2% annually to $1,329 per sq. ft. This was the first quarterly fall since Q4 2018 and followed the record high of $1,443 per square foot achieved in Q3 2022.
Despite these year-end decreases, Q4 average new condo prices increased by 8% yearly due to the peak prices witnessed in early 2022.
The biggest difference in pricing between new and resale condominiums has ever been caused by a fall in average resale values, which plummeted 14% between Q1 2022 and Q4, and were down 3% yearly at year's end. The difference is significantly more than the prior gap, which was $332 per square foot in Q4 2019, at $580 per square foot, or 68%.
Originally planned to be completed in 2023 were 32K condo apartments, however that number has since been reduced to 25,406. Still, it remains a record high, and demand will undoubtedly match it.
Renters will make up a large portion of the demand since ownership remains unaffordable (interest rates have increased 4.25% in the past 10 months), and immigration is expected to skyrocket. In Q4 2022, condo rents increased by as much as 20% year over year while new and resale values fell.
According to Shaun Hildebrand, President of Urbanation, "the downturn in condo presales in the second half of 2022 is projected to persist into 2023."
The requirement to increase home development in the GTA over the coming ten years in order to meet rising immigration targets and address present housing supply shortages is at conflict with this.
