GTA Condo Market Report Q4 2022
It’s always a good idea to research a purchase before making one, whether it’s a pair of shoes, a dishwasher, or a new house. The Q4-2022 Condo Market Report from Urbanation, the top real estate consulting company in Toronto and a source of in-depth local market analysis, is now available. In order to assist you in making the best possible investment choices, we’ll look at market highlights in the Greater Toronto Area (GTA) from Q4–2022.
On many fronts, the pandemic may appear to be over, but Canada’s economy and real estate market are still dealing with its aftereffects. According to Urbanation, many experts predicted that Canada’s interest rates would increase by about 125 basis points in 2022 to combat inflation, but we were surprised to see a 400 basis point increase instead.
The Bank of Canada raised interest rates seven times in a row in 2022, taking the policy rate from zero percent at the start of the year to four percent at the end. As a result, demand for new condominiums in the GTA significantly decreased. The rate and magnitude of the interest rate increases were unprecedented. As a result, sales of new condos decreased by 30% in 2022 when compared to 2021, and by 58% annually in the fourth quarter. This was partially caused by a decrease in new launches year over year.
Sales in Q3–Q4 2022 were so low that they matched 2008’s financial crisis-era lows. The amount of unsold inventory increased by 30% between Q4-2021 and Q4-2022, reaching a 14-quarter high of 15,015 units.
The good news is that while there were overall sales declines, these declines were largely offset by the record-breaking highs reached at the beginning of the year. As a result, new condo sales, inventory, and price growth in the GTA returned to historical averages as the market rebalanced. How the market for new condominiums will perform in the future is what matters right now.
It’s important to note that 2022’s total sales, which came to 21,782, fell exactly in line with the 20,983 sales average over the previous ten years.
Due to the unfavorable response from consumers caused by high interest rates, developers cautiously introduced new projects in Q4-2022. Launches decreased year over year. However, there was some good news.
Between Q3 and Q4 2022, the number of new project launches increased from 2,857 units to 4,812 units, and absorptions increased from 26 percent to 54 percent, showing some recent progress.
With higher interest rates reducing demand for new condos, developers are becoming more competitive with their pricing. In Q4 2022, the average opening price for brand-new condo launches was $1,329 psf, a 2 percent decrease from the previous year.
Unsold condo prices fell in Q4 2022 from the previous quarter but remained 8% higher than in Q4 2021 as a result of the significant price increases seen in the first half of 2022.
Construction on new projects increased slightly in Q4 2022, suggesting that future launches of new condos in the GTA will probably continue to be robust.
3,281 units was an eight-year low for resale condo sales, which dropped by 36% from Q4 2021 to Q4 2022. The 3 percent year-over-year decline in resale prices, which is similar to the decline seen in earlier quarters, puts pressure on the price of new condominiums.
In Q4 2022, the difference in price between new and used condos reached a record $580 per square foot. According to Urbanation’s comments, new condo prices may need to outperform for a while in order to attract investors in the future.
The good news is that presale condo purchasers who plan to move in by 2023 are still in a good position. In new condominium developments, the average presale price for units that will be occupied in 2023 is $876 psf, which is still less expensive than the average resale price of $1,050 psf. Resale prices will increase by 20% for buyers if they stay at this level.
The GTA experienced the second-highest apartment demand on record last year, which was high. Sales were outpaced by rental activity at a record-high ratio of more than 2-to-1. The cost of owning a condo is rising, from condo fees to mortgage payments in terms of cost per square foot, which is why more people are renting and fewer are buying. In the last ten years, condo ownership costs have increased by 133% more than rents have (vs. 66%). The expense of owning a condo is anticipated to level out and decrease once interest rates stabilize as anticipated in 2023 and prices soften.
Incentives Currently Available.
In an unfavorable market, developers are increasingly giving incentives to buyers. Beyond the typical extended deposit structure, capped developments, and no assignment fee, new incentives announced in Q4-2022 included:.
- Zero development levies
- Discounted or free parking
- Discounted or free locker
- Lower deposit amounts
- Price discounts on select units
- Cashback/credits at closing
- Rental guarantees
Investors can save thousands of dollars on a final deal by asking about any potential incentives that may be available.
Future Growth Will Be Slow But Steady.
In the upcoming months, it is anticipated that developers will continue to launch their new projects cautiously. Although 42 projects totaling 12,407 units may launch during the first half of 2023, only two projects were launched in January. Before taking further action, developers need to learn more about market demand and pricing dynamics. So, it’s expected that launch levels will stay low for a while. Due to the availability of inventory being close to Q4-2022 levels, which are in line with the 15-year average, this strategy is anticipated to aid in maintaining the equilibrium of the new condo market. Long term, as demand for new condos rises, this will allow new launch activity to improve.
As the economy weakens and interest rates continue to rise, experts say it is unlikely that condo prices will reach their all-time high in 2023. As long as data is compared to the early 2022 market highs, year-over-year comparisons will probably continue to be negative through the first half of 2023. With that said, if supply and demand continue to follow their current trends, the quarter-over-quarter movement is anticipated to show stability and modest growth.
To assist you in making the best investment choices, GTA-Homes’ goal is to keep you informed about the pre-construction condo market. The demand for new housing is anticipated to be very high for many years to come as the Greater Toronto Area continues to experience explosive growth. To learn more about how you can profit, sign up for our twice-weekly Online Condo Investment Seminar.