A total of 4,577 new condominium apartments were sold in the third quarter of this year in the GTA, down 30 per cent compared to last year as fewer new projects came to market, according to Urbanation’s Q3-2017 market results.
Unsold new condo inventory across all stages of development increased for the first time since Q4-2015, reaching 7,618 units after falling to a 15-year low of 6,699 in the second quarter. Remaining inventory declined 38 per cent year-over-year and was 47 per cent below the 10-year average of 16,304 units.
So far in 2017, a total of 26,453 new condominium units were sold, as of the end of September. An additional 12,000 units could be brought to market during the fourth quarter, which is predicted to reach a new high for sales in 2017 estimated at 34,000 units, far surpassing last year’s record of 27,000 sales. Amid record demand and falling inventory, price growth for new condos continued to pick up speed. The price index for all sold units in development climbed 13 per cent year-over-year to reach $670 per square foot, with remaining units in Q3-2017 priced at an average of $816 per square foot, an increase of five per cent compared to Q2-2017 and 30 per cent compared to year-ago levels. In the former City of Toronto, the price for unsold inventory reached an average of $991 per square foot.
Due to this level of market activity in 2017, a slowdown in sales is expected next year, leading inventory levels to move up towards more historically normal levels and cause less upward pressure on pricing.
New condominium apartment price growth has started to deviate from recent resale market trends. Resale condominium apartment prices averaged $648 per square foot in the third quarter of this year, falling slightly compared to Q2-2017 ($650 per square foot) for the first time in over three years as sales fell 26 per cent year-over-year following the introduction of the Ontario Government’s Fair Housing Plan. However, market conditions remained firm with a sales-to-listings ratio of 60 per cent, keeping resale condo prices up 27 per cent compared to one year ago, a deceleration from the 31 per cent annual growth seen in Q2-2017.
Rising rents, which have been impacted by a decline in supply, are part of the reason why potential homebuyers are interested in investing in new condos in 2017. Average rents for condo units in Q3-2017 climbed 10 per cent annually to $2.98 per square foot as condo completions fell to a four-year low of about 15,000 units over the last year. However, the number of condominium units under construction reached a three-and-a-half year high of 54,715 in Q3. The number of completions are projected to reach 20,000 units in 2018, which should ease some pressure off the rental market.
Meanwhile, the recently announced stress test requirements for uninsured mortgage borrowers is expected to cause further declines in resale activity in early 2018, although the condo market is expected to remain relatively resilient due to its affordability. New condo sales should not be directly impacted by the new rules as pre-sale buyers were already required to qualify at posted mortgage rates. However, indirect effects caused by lower perceived investment returns should slow demand for new condos from current levels.
“After closing out 2017 with a record year, the new condo market is poised for moderation in 2018,” said Shaun Hildebrand, Urbanation’s senior vice president, in a press release. “A more cautious approach for both developers and buyers in the coming months will help to ensure the transition to a more sustainable pace of activity is orderly.”