New homebuyers finally reached their limit in Toronto last year.
After years of frenzied price increases, sales of new homes in Canada’s biggest city sunk to the lowest in almost two decades in 2018 and the supply of unsold condos piled up, according to a pair of new reports released Friday.
“Greater caution” should be taken when investing in new condo units, particularly over the short-term, as trends point toward slower appreciation, Shaun Hildebrand, president of condo research firm Urbanation, said in the report. The “market has started to normalize after unprecedented activity in recent years.”
Toronto’s housing market is dramatically cooling after higher interest rates and new mortgage regulations bite. The city joins other global metropolises such as London and Sydney seeing a slowdown as international investors retreat and domestic buyers balk at higher prices.
Sales of new homes fell to 25,161 from 2017, according to the Building Industry and Land Development Association, which used data from Altus Group Ltd. That’s the lowest annual number since Toronto-based Altus started tracking the figures in 2000.
Single-family homes showed the biggest decline, plunging 50% to 3,831 from 2017 and 74% below the 10-year average. Condos sales fell 38% to 21,330, but only 4 percent below the 10-year average.
While the benchmark price of a new single-family home slumped 6.7% to C$1,143,505 in December on the year, condo prices surged 11% to C$796,815 ($605,000), according to BILD’s report.
But figures from Urbanation show further weakness building in condos as well. A record 21,991 units are expected to be completed this year, up 29% from 2018. While 98% of those units are presold, more than half were bought by investors who will either rent their units or sell them, the firm said.
The number of unsold units in development jumped 47% in the fourth quarter from the year before to more than a two-year high and price gains for units under development grew only 0.4% between the third and fourth quarters, the smallest quarterly increase in almost three years.
“The slowdown in activity last year can partly be attributed to less demand from investors, who typically represent the largest component of new condominium purchasers,” in the Toronto region, according to Urbanation’s report.
“The market is out of balance,” said David Wilkes, president and chief executive officer of BILD, an industry group for about 1,500 companies in the Toronto region. “We join other industry groups in calling on the federal government to revisit the stress test and allow a longer amortization period for first-time buyers. And we look forward to working with our municipal partners on removing barriers to development such as excessive red tape and outdated bylaws.”