Market Insight for Sept. 1

At just the moment when more housing is desperately needed, three dozen condo buildings, adding up to more than 8,000 units, have been delayed in the GTHA (Greater Toronto and Hamilton Area) — many in more affordable communities — due to higher interest rates and a lack of confidence in the market.

According to market research firm Urbanation, more than 2,000 units are delayed in Hamilton, almost 3,000 in Toronto, and hundreds in cities in the Greater Toronto and Hamilton area such as Brampton, Burlington, Mississauga, and Oakville.

“In normal circumstances, you don’t really see that many projects being held back — they come to market, and that’s just not happening right now,” said Shaun Hildebrand, president of Urbanation. The firm counts delays as projects that were gearing up to launch (releasing marketing materials, etc.) since the second half of 2022, but did not end up being brought to market.

“I would say outside of a very brief period at the onset of the financial crisis in late 2008 or early 2009 there hasn’t been this much hesitation and market uncertainty since the 1990s, and I think it’s directly tied to interest rates.”

Just over 8,000 units in 31 projects across the city have been delayed, including 2,937 in Toronto, 694 in Oshawa, 350 in Brampton, 378 in Mississauga, and 365 in Clarington. Hamilton has seen 2,054 units delayed.

The high numbers in the GTHA make sense, Hildebrand said, as development has spread further from downtown Toronto. However, the delay of projects in the suburbs and cities on the outskirts of the region is “even more concerning” than those in Toronto as places like Hamilton are more affordable markets.

Higher interest rates impact both developers, who are also dealing with high construction costs, and buyers relying on mortgages to finance their home purchases. When developers can’t sell units, they push the projects off, Hildebrand said. As condos are one of the biggest sources of new homes in the GTA, and investors are “doing the heavy lifting” of providing new rentals, this will impact supply. “The province is off track, to say the least, to achieve its 1.5-million new homes goal,” he said.

“We think about there being a housing supply gap right now, it’s only going to get worse, given the current dynamics in terms of presale launch activity and sales.”

Some buyers started coming back when interest rates were paused in the spring, “but those two rate hikes (in June and July) just sort of pulled the rug out from under their feet,” he said. “It’s also the summer slowdown. We’re always a bit slow in the summer. I’m a bit fearful of what August and September are going to look like.”

Builders are “not going to keep bringing product if nobody’s buying it,” he said, adding that “talk of a looming recession” is also spooking buyers.

It’s hard to speculate on why GTHA communities like Hamilton have such high rates of delays. But it’s not a huge surprise that projects are being cancelled or delayed, given the economic environment.

People are waiting to see what happens on Sept. 6th, referring to the Bank of Canada’s next interest rate announcement.

In the long-term, Hildebrand still believes the outcome for condos and investors is good, given high immigration and low supply. “But I don’t think sales and new launches will bounce back quickly and return to previous highs reached in 2021 — it could take a while.”