Market Insight for October 17

Condo sales across the Greater Toronto and Hamilton Area dropped to lowest level in 35 years during the third quarter, as the market downturn deepened and a record number of development projects were cancelled this year.

Just 319 new condo units were sold in the third quarter — a 54 per cent decline from last year and the weakest quarterly performance since 1990, when Toronto’s condo market last faced a major correction, according to the latest report from real estate research firm Urbanation.

So far this year, 18 projects, representing 4,040 units, have been cancelled across the GTHA — signaling that the market’s ongoing strain is unlikely to ease anytime soon.

The previous record for cancellations in a single year was 15 projects in 2018. Meanwhile, only two new condo developments totaling 614 units began construction in the third quarter — a 77 per cent drop from the same period last year.

Urbanation president Shaun Hildebrand noted that today’s wave of cancellations stems from weak demand for units priced beyond buyers’ reach — the opposite of what drove cancellations back in 2018.

“In 2018, many projects were scrapped because they sold out quickly, but rising costs made them financially unworkable by the time construction was ready to start,” said Hildebrand.

“Now, we’re seeing projects cancelled due to poor pre-sales and developers’ inability to lower prices — since costs remain so high — to levels that would entice demand.”

The condo market has entered a significant correction following the unsustainable surge in prices and activity during the pandemic. Many large-scale projects have been paused or shelved altogether as financing dries up, and pre-construction buyers struggle to close their deals.

One of the latest examples is Mattamy Homes and QuadReal, who decided to cancel their massive Cloverdale Mall redevelopment after selling fewer than 10 per cent of units.

Inventory in completed buildings continues to pile up — with unsold units surging 142 per cent year over year to a record 2,944 units. Developers are also facing growing challenges competing with the resale market, where units are far cheaper.

The average resale condo sells for $867 per square foot, compared with $1,199 for a comparable new build.

Rising construction, labour, and development costs, along with higher interest rates, have made it nearly impossible for developers to reduce prices, according to Urbanation’s report.

Industry watchers hope developers will adapt by shifting focus toward building larger, family-friendly condos rather than small investor-targeted units.

While the slowdown in construction will strain housing supply in the years ahead, Hildebrand said it could eventually help stabilize the market.

“The lack of activity today will almost certainly lead to a shortage of supply down the road,” he said. “That shortage could be the catalyst that restarts the market.”

CIBC deputy chief economist Benjamin Tal added that it could take years for the condo sector to work through its excess inventory and reach a price point that makes new development viable again.