Toronto’s condo market is experiencing a significant shift in 2024, with new listings surging by 36.5% in the second quarter, leading to a rise in available inventory. With over 16,917 new listings added to the market, the influx of condos has created a buyer-friendly environment where potential homeowners have more choices than ever before. Despite the flood of new inventory, sales have lagged, and prices have only seen a modest decline, raising questions about whether buyers will step in to take advantage of these conditions.
In this article, we’ll explore how the surge in listings is impacting Toronto’s condo market, why buyers are still cautious, and what the future holds for both buyers and sellers in this evolving landscape.
A Surge in Listings: What’s Behind the Rise?
The 36.5% year-over-year increase in condo listings in Q2 2024 represents one of the most significant shifts in the Toronto real estate market in recent years. Several factors are contributing to this rise in inventory:
- Investors Offloading Units: Many investors who purchased pre-construction condos in previous years are now looking to sell. Rising carrying costs—driven by higher mortgage rates and cooling rental yields—have made it less profitable to hold onto investment properties. As a result, investors are listing their units in greater numbers, adding to the overall supply of condos on the market.
- New Construction Projects: Toronto’s condo development boom in the past decade means that many pre-construction units are now being completed and listed for sale. Developers, eager to offload newly finished condos, are contributing to the surge in listings. In some cases, these new developments are also competing with older units, putting additional pressure on sellers to attract buyers.
- Rising Interest Rates: Higher interest rates have pushed some homeowners to list their condos in an effort to downsize or reduce their mortgage burden. With mortgage payments rising for those on variable-rate mortgages, some sellers are choosing to cash out of their condos rather than face continued financial strain. This has added to the growing inventory, particularly as sales have slowed.
Buyers in Control: A Shift Toward a Buyer’s Market
The surge in listings has created what can be described as a buyer’s market, where there is more supply than demand. In a typical market, this imbalance would lead to significant price reductions as sellers compete to attract buyers. However, in Toronto’s condo market, prices have only seen a modest 1.2% year-over-year decline, raising questions about why buyers aren’t jumping at the opportunity.
With more than 16,917 condos available for sale, buyers have a greater ability to negotiate and take their time choosing a property. The days of bidding wars and over-asking sales that defined Toronto’s hot housing market seem to be over, at least for now. This shift in market dynamics gives buyers more control over the process, as they can weigh their options and potentially negotiate better terms.
Why Are Buyers Still Hesitant?
Despite the influx of new listings and the shift toward a buyer’s market, many prospective buyers are still holding back from making purchases. Several factors explain this hesitancy:
- High Interest Rates: The biggest hurdle for many buyers remains the cost of borrowing. With mortgage rates hovering around 6.5% for a 5-year fixed mortgage, potential buyers are finding that the monthly cost of homeownership is much higher than it was just a few years ago. Even with more condos available, high interest rates are making it difficult for buyers to afford the units they want.
- Market Uncertainty: Many buyers are adopting a wait-and-see approach, unsure of whether prices will drop further in the coming months. With sales down by 19.8% year-over-year, buyers may be expecting sellers to reduce prices more aggressively, especially if condos continue to sit on the market for longer periods. This expectation of further price declines is keeping some buyers on the sidelines.
- Affordability Concerns: Even though there are more condos available, prices remain high relative to buyer incomes, particularly for first-time buyers. While prices have dropped slightly, the combination of high interest rates and high prices means that many potential buyers are unable to qualify for a mortgage or are concerned about taking on such a large financial commitment.
What This Means for Sellers
For sellers, the rise in inventory presents a challenging environment. With more competition and fewer buyers making offers, condos are sitting on the market longer. Sellers who are motivated to sell quickly may need to adjust their expectations and consider lowering their asking prices to attract buyers.
Those who are not in a rush to sell may choose to hold firm on pricing, hoping that buyer demand will rebound once interest rates stabilize or begin to fall. However, with more new listings entering the market each month, sellers who are unwilling to negotiate or adjust prices may find themselves facing extended listing times.
Sellers should also be aware of the impact of new construction on their ability to sell. Buyers may be more attracted to newly built condos with modern amenities, making it harder for sellers of older units to compete unless they offer price reductions or other incentives.
Will Prices Drop Further?
The key question on many buyers’ minds is whether prices will drop further as inventory continues to rise. While prices have only declined slightly so far, the combination of rising listings and sluggish sales suggests that a more significant price correction could be on the horizon, particularly if interest rates remain high and buyer activity remains subdued.
Experts suggest that if inventory levels continue to grow and sales fail to pick up, sellers may be forced to reduce their asking prices more substantially to stimulate demand. This could lead to a price correction in the latter half of 2024, particularly if the economic conditions driving buyer hesitancy—such as high interest rates and inflation—persist.
However, it’s also possible that the market could stabilize if buyers return in greater numbers. A pause or reduction in interest rates could lead to a surge in buyer activity, which could prevent prices from dropping significantly. In this scenario, sellers may hold firm on pricing, creating a more balanced market.
Is Now the Time to Buy?
For potential buyers, the current market presents both opportunities and challenges. On one hand, the increased supply of condos means more options and better negotiating power. Buyers can take their time to find the right property and may be able to secure favorable terms from sellers who are eager to close a deal.
On the other hand, high borrowing costs continue to limit affordability, and there is uncertainty about whether prices will drop further. Buyers who are waiting for a more substantial price correction may choose to delay their purchase until later in the year, especially if they believe interest rates could fall or inventory levels could rise even further.
For those who are financially prepared to buy and can secure favorable mortgage terms, now may be an opportune time to enter the market and take advantage of the increased selection and reduced competition. However, buyers should carefully weigh their options and consider their long-term financial goals before making a purchase.
What Investors Should Know
For real estate investors, the rising inventory presents both risks and opportunities. On the one hand, more available condos and slower sales could lead to better purchase prices for investors looking to acquire units in Toronto. With rental demand still strong, investors may find opportunities to buy condos at lower prices and rent them out to take advantage of rising rental rates.
On the other hand, investors should be cautious about purchasing in an environment where prices could drop further. Those relying on short-term appreciation may find themselves facing longer holding periods or lower-than-expected returns if the market continues to soften.
Conclusion: A Market in Transition
Toronto’s condo market is undergoing a significant transition in 2024, with the surge in listings shifting the balance of power toward buyers. With more inventory on the market than ever before, buyers have more options and greater negotiating power, but high interest rates and affordability concerns are keeping many on the sidelines.
For sellers, the challenge will be to remain competitive in an increasingly crowded market, while for buyers, the decision to purchase or wait will depend on their financial situation and outlook on future interest rates and market conditions. As the market continues to evolve, all eyes will be on whether sales pick up in the coming months or if prices begin to fall more significantly.
