Increased borrowing expenses and high numbers of completed condominiums contribute to surplus in Greater Toronto housing market

Real estate experts in the Greater Toronto Area suggest that a surplus of new condo units combined with high interest rates is creating an imbalance in the market that will take time to correct.

A recent report by TD economist Rishi Sondhi highlighted that sales activity is not keeping pace with the increased supply, with July condo resales in the GTA dropping by 25 percent compared to pre-pandemic levels.

Sondhi pointed to various factors contributing to this trend, including a surge in newly constructed condos hitting the market, rising borrowing costs making it challenging for some buyers to secure mortgages, and investors looking to sell due to declining rents and negative cash flow.

He noted that the narrowing gap between condo returns and government bond yields due to elevated interest rates may be discouraging condo investments, although recent yield decreases could help widen this margin again.

Sondhi’s research revealed a significant increase in condo completions in the GTA, with approximately 19,000 units completed between January and July this year, up from 12,000 in the same period in 2023 and 10,000 the year before.

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Brendon Cowans, a sales representative at Property.ca, indicated that the surge in condo completions, coupled with high interest rates, poses challenges for the market.

Active condo listings in the GTA have increased significantly, with a 63.9 percent rise in July compared to the previous year, according to Zoocasa. The City of Toronto has also experienced a similar uptick in active condo listings.

This trend, seen across major Canadian cities, reflects the impact of rising interest rates on property ownership costs.

Despite the oversupply, buyers are benefiting from lower condo prices, which fell by two percent year-over-year in July in the GTA, presenting a favorable opportunity for investment.

Sondhi predicts a gradual recovery in condo sales as supply and demand dynamics stabilize, with a potential decline in resale prices in the coming months.

While interest rate adjustments by the Bank of Canada will influence market conditions, experts like Debbie Cosic remain optimistic about a turnaround in the near future.

For buyers considering a purchase, now may be an opportune time to take advantage of incentives and favorable pricing resulting from the current market conditions.

Cowans emphasized the significance of future rate cuts and slowing condo completions in driving a potential rebound in sales over the long term.