To borrow a phrase from T.S. Eliot, 2008, which started with such great promise for the condo market in the Greater Toronto Area, ended "not with a bang but a whimper."
According to RealNet Canada Inc., which tracks the housing market, the total of new-condo sales in December for all of the GTA was only 198 units, compared with 1,024 in the same period of 2007. Of the latest figure, 155 were in the city of Toronto.
To give a clear idea of just how dismal the market was in December, Durham Region saw absolutely no sales at all, Peel had just 17 and York 20. Another way to look at it is December sales in the GTA were about what the launch of a single new project might have recorded earlier in the year.
"It was almost a historic monthly low," says George Carras, RealNet president. And he doesn't have much hope that January or even February will be much better.
"Buyers are taking a wait and see attitude — unless circumstances mean they have to move," he says. "In that case, they will be looking at standing inventory."
The impact? Barry Lyon of N. Barry Lyon Consulting Ltd., recognized as an industry expert, says: "I don't think you can expect the launch of any major new projects."
So that is the bad news. What does the future hold? A whole lot of chain reaction consequences, a good many of which spell good news for buyers, experts suggest.
First and foremost is a major shift from a seller's to a buyer's market in both new and resale condos.
"I think the whole industry is coming back to the basic understanding that consumers drive the market," Mr. Lyon says.
"For the past few years, the attitude has been, 'We can sell anything we build.' Now the focus is in tailoring projects and incentives to compete for the buyer's attention."
That will not mean much in the way of price cuts, however. Developers' profit margins are already slim and a protracted slowdown will make them even slimmer. What it will mean is lots of special incentives and promotions, such as upgrade packages galore, perhaps free parking, lower down payments, maybe no maintenance fees for a fixed period of time, and possibly special financing deals. Developers who are able to will also redesign buildings to offer lots more smaller suites at lower prices.
LTD at Bathurst and Fleet streets has already introduced a range of studio and one-bedroom suites priced from $185,900.
Those incentives may jump-start demand.
Low single-digit mortgage money (now in the 4.5-per-cent range) will both attract lower-income buyers and make monthly payments more affordable for anyone needing bank financing to close a deal.
At the same time, the number of projects on sale will likely shrink significantly, Mr. Lyon says.
Those developers who already have construction financing will go ahead with their plans, while those still in the preconstruction sale phase may find sales so slow that they can't get bank financing to complete the project. They will fold their tents and people who have already bought suites will have to start searching for replacements. Mr. Lyon is reluctant to say how many projects will bite the dust, but he does allow that it will be a significant number.
The upshot is that men and women who thought they had a lock on a new condo will have to re-enter the market, creating demand for projects with the financial backing to deliver a finished condo.
That groundswell of displaced buyers will likely add to demand created by incentives and low mortgage rates.
Another overlooked consequence is the impact on the rental and resale markets. This year will see buyers close on 23,000 new condo suites — the ones they signed deals for 18 months to two years ago and are just being completed now.
The upshot is that many who make the move will be leaving rental suites, which, in turn, will become available to those seeking such accommodation. And those who already own condos will mostly likely have to sell them, thus fuelling supply in the resale market.
"In the area of downtown Toronto, the condo rental vacancy rate is just 0.4 per cent," Mr. Lyon notes. "Thousands of existing suites will become available again, which will definitely ease the rental crunch."
Finally, both Mr. Lyon and Mr. Carras see the resale market in condos outperforming new-suite sales.
"With nothing new on the horizon, and with people leaving existing homes to move into new suites they bought two years ago, it seems very likely the action will shift to the resale market," says Mr. Lyon. An added incentive is that resale condos average up to $100,000 less than new ones.
For a man who has made his living from the development industry for about 40 years, Mr. Lyon is upbeat about the longer-term situation.
"This downturn may prove a good thing," he says. "It will get the industry back to focusing on the consumer, it will mean a buyer's market and it may bring affordability back in line. In a good many ways it will be a great time for consumers."
