Construction cranes and buildings being constructed in downtown Toronto, are photographed on Jan 25 2022. Fred Lum/The Globe and MailFred Lum/the Globe and Mail
Struggling sellers in Toronto’s condo market are bringing a wave of units for rent to the downtown core.
“We’ve started to shift a lot of sellers into the rental market,” says Christopher Bibby, broker with Re/Max Hallmark Bibby Group Realty.
Some frustrated owners are trimming their asking price and still not getting showings, says Mr. Bibby, who estimates that condo prices in the city have slipped between six and eight per cent since the peak in early spring.
Last week Mr. Bibby had six listings for sale; this week, three of the properties are going up for lease.
He points to the popular Hudson building at the corner of King Street West and Spadina Avenue. Until March, units sold within a couple of days at large premiums above the asking price.
Mr. Bibby had one unit prepped and polished for sale but it still sat on the market for 60 days. The owner decided to find a new tenant instead and the unit drew multiple offers.
Mr. Bibby says he can understand why buyers are nervous when they are grappling with soaring inflation and a string of interest rate hikes by the Bank of Canada. Many are betting that home prices have farther to fall.
Consumer confidence in Canada has recently plunged to crisis-era levels – and that reading was recorded before the central bank’s 100 basis points interest rate hike in July, says Stephen Brown, senior Canada economist at Capital Economics.
Toronto could face wave of condo project cancellations as costs rise
He believes the central bank’s shock tactics will weigh heavily on consumer sentiment.
Mr. Brown now forecasts that the variable mortgage rate will rise to 5.3 per cent. That compares with a 1.3 per cent rate at the end of 2021.
The changes have turned buyers’ “fear of missing out” into paralysis.
Mr. Bibby points to the contrast between today and the intensity of last fall and winter, when his team might line up four to six properties a buyer could see the following day. Before they could get in the door, two would have already sold and another would be in the middle of an offer.
Now the same buyers can see that line-up of properties the next day and four to six new ones later in the week. At that time, the original batch will still be on the market.
The abundance of choice gives buyers the impression they can take their time.
“There’s just not this sense of urgency. Buyers want deals, but significant deals, to protect themselves from the future.”
At the same time, sellers are resisting any downward pressure, Mr. Bibby says.
“If they can’t get their price, they’re not going to sell. It’s fascinating that there’s a stand-off.”
Condo sales in the Greater Toronto Area plunged 40 per cent in June compared with June, 2021, according to the Toronto Regional Real Estate Board, while the average price jumped 9.3 per cent in the same period.
Mr. Bibby says one seller decided to lease his unit after a buyer came in with an aggressive offer that was only good for a few hours. The price-per-square foot on offer was actually a record for the building, he adds, but the seller pulled the listing.
“Their approach just soured the process,” Mr. Bibby says of the buyer’s take-it-or-leave it offer.
The GTA has seen the number of terminated condo listings surge 643 per cent since January, according to real estate platform Strata.ca.
To Anna Wong, a real estate agent with Strata, the cancelled listings signal that sellers are not getting the prices they want, and they are incredulous at the change.
“They’re saying, ‘I can’t get what my neighbour got a month ago?’”
In January, Strata recorded 380 cancelled listings in the condo segment. In June, that number swelled to 2,822.
Listings are often cancelled after a property has been listed with an offer date but fails to sell. In other cases, a condo languishes on the market for months and the contract between the seller and the listing agent expires.
Many of those properties will reappear on the market with a revised asking price.
If the original asking price was set below market value in order to spark a bidding war, the new price may be higher as the seller tries a different strategy.
If the property sat at a bloated price without selling, the unit likely reappears with a price cut, says Ms. Wong.
Ms. Wong listed one condo at the beginning of May with an asking price of $599,000 and an offer date. The unit sold conditionally for $740,000 but the buyer’s financing fell through.
Ms. Wong relisted the unit at $740,000 with no offer date but buyers didn’t even book showings. After a couple of price cuts, she tried it at $696,200.
A buyer came in with a lowball offer, but the seller held firm. The same buyer then paid the full asking price.
“It’s crazy how quickly the market changed,” Ms. Wong says. “If you did a $599,000 now, no one would give you $740,000.”
Ms. Wong notes that the condo market also saw a pause for a few months during the pandemic in 2020, but sales picked up again once vaccines started to arrive.
“I think right now it’s a bit more serious,” she says, pointing to rising inflation and interest rates.
Ms. Wong says she’s noticed a chill when it comes to properties over $1-million because buyers need a down payment of 20-per-cent above that threshold. Many are no longer able to qualify.
As a result, two-bedroom, two-bath condos that used to fetch more than $1-million are now listed in the $850,000 to $870,000 range.
“The one-million mark is hard to hit now,” she says.
For one-bedroom condos without parking, the entry level has dropped to the low $500,000s, says Ms. Wong, pointing to the 30 towers in the CityPlace community downtown. In January, 400-square-foot studios were going for that amount, she says.
Ms. Wong also sees owners who failed to sell leasing out their units instead because the rental market is hot.
Condo rental inventories in the GTA have dropped 60 per cent from January levels, Strata’s data crunching shows.
One reason rentals are in such demand is that some owners are selling their existing properties, then renting with the hope of buying again when prices have come down even more.
Ms. Wong recently received six offers for a one-bedroom unit with parking at 4K Spadina Ave. The unit, with an asking price of $2,190 per month, was leased for $2,250.
“We’re probably going to see a bump in rentals in September when landlords give up on selling,” she says.
Ms. Wong says investors have been quiet lately because – even when a unit seems like a good deal – they can’t make the math work with the higher interest rates.
Looking ahead, Ms. Wong says inventory may diminish and prices may strengthen after Labour Day, but that could cause another swell in listings.
“If people do well in September and the neighbours see that, they’ll say ‘we’re going to sell too,’” she says. “All of a sudden you have 3,000 listings versus 600.”
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