Market Update for August 11

Real estate investors are exiting the market as new listings in Toronto trend up, and interest rates remain high, experts say.

In July, new listings increased by 11.5 percent annually, and condominiums had the highest percentage rise in sales volume compared to single-family homes, increasing by more than 11 percent annually.

Investors who bought from 2020 to 2022 when interest rates were at extreme lows have seen their mortgage rates triple. They’re putting their rental properties up for sale as their cash flow has diminished. A whopping 36 percent of the condos in Toronto are owned by investors.

The properties trickling into the market now are typically from investors with multiple properties who are over-leveraged and are having to constantly refinance. Their cash flow is essentially gone because of elevated interest rates, adding that rent can’tbe raised to adjust to higher mortgage payments without getting new tenants.

There is this sense that with more new listings, it will free up supply for homebuyers, and while some of it will, that means fewer options for renters. Rents for GTA condos continued to soar, hitting an average of about $ 2,800 a month in the second quarter of 2023, according to market research firm Urbanation.

The majority of investors who purchased pre-construction condos to use as rentals weren’t making money in 2022, the first time such a scenario has occurred. Only 48% of newly completed condos were cash flow positive last year, compared with 56% in 2021 and 60% in 2020, meaning that the rent investors collected from tenants was lower than their mortgage costs, condo fees, and property taxes.

Currently, variable rates hover in the mid-six-per-cent to low seven-per-cent range at all the major banks, while fixed rates are in the mid-five-per-cent to low- low-six-per-cent range.

“This marks a meaningful shift that may potentially signal that a change in investor behavior is on the horizon,” the report notes.

Over the next 12 months we’ll see more investors sell their rental properties, but we won’t see a massive wave of new listings and it still won’t be anywhere close to meet demand.