The large number of condos being built in Toronto is now curbing the rise in both prices and rents.
Resale prices for high-rise units in the country’s most populous city are flattening out after years of appreciation, and the degree to which monthly rents have been rising has begun to slow.
The latest figures suggest that the record amount of supply that is coming on stream, as well as the impact of recent mortgage insurance rule changes, is now shifting the balance between sellers and buyers as well as owners and tenants.
For the first time in this latest quarter the median price of a resale condo in the Greater Toronto Area showed no significant year-over-year appreciation. Prices of pre-construction condos in the city have already been dropping, but this is the first time that prices of resale condos over the MLS system have not increased meaningfully since the recession.
The average resale price was $334,204 in the third quarter, flat compared with the average price of $332,969 in the same quarter a year ago.
Resale condo prices slipped into negative territory around the height of the financial crisis in early 2009, but had been rising on a year-over-year basis since then. Price growth stretched up toward nearly 20 per cent in early 2010, and had been bouncing around in a range between about two per cent and 10 per cent since.
The softening comes as the market adjusts to a new abundance of available units. There were 488 condo sales over the MLS system between Oct. 1 and Oct. 14, the Toronto Real Estate Board said Tuesday. That’s down 18 per cent from the same period last year. The average price for the condos that sold this month was $356,312, down four per cent from a year ago.
Meanwhile, the number of condos that were rented by way of the MLS system rose three per cent in the third quarter to 5,241. But the number of condos listed for rent in the same period rose 18 per cent to 8,845.
Average rents rose by 3.4 per cent for one-bedroom units, to $1,605, and 2.2 per cent for two-bedroom units, to $2,097. But those price increases were generally not as strong as the ones the market had seen in the past four quarters.
“Prospective renters had more units to choose from, which led to less upward pressure on rents,” said Jason Mercer, senior manager of market analysis at the Toronto Real Estate Board.
One- and two-bedroom condos accounted for 95 per cent of the rental transactions the board saw in the third quarter. The less-abundant three-bedroom units saw their average rent rise 12.7 per cent to $2,660.
Industry experts say that the demand for three-bedroom condos is outpacing the supply. Data from TheRedPin.com suggests that just 3.2 per cent of all of the pre-construction units under development in buildings that are still marketing are three-bedrooms, while more than 90 per cent are one- and two-bedroom.
When developers talk about the reasons that they believe Toronto’s condo market can handle the current construction, they often cite restrictions on further expansion of the suburbs due to the Greenbelt. But it’s not clear that condos are a viable alternative to suburban living for most families, due to the lack of larger units.
Developers tend to favour smaller units because they traditionally have sold faster, are easier for investors to rent, and are subject to less taxes.