Greater Toronto’s real estate rut shows no signs of ending soon. BMO Capital Markets recently shot down the pent-up demand and slowing supply narratives, warning investors the market is filled with supply no one really wants.
Toronto Real Estate Weakness Is Being Led By Condos
Source: BMO Capital Markets; TRREB.
Toronto’s slide continued last month with condos absorbing the bulk of the pain. Home sales dropped to a multi-year low in February (-6.4% y/y), while typical home prices fell 7.9% y/y. Condo prices tanked 9.5% over that period, now sitting roughly 25% below their early-2022 peak.
“The condo market is well in recession,” BMO economist Robert Kavcic says flatly.
That won’t shock anyone in the industry. The real question is how much longer this drags on.
Pent-Up Demand Won’t Be Enough To Save Toronto Condos
Greater Toronto’s population is approaching 7 million. Home sales have cratered to near-record lows for three years straight. Even the least optimistic observer is starting to ponder if this will trigger a spring recovery.
Kavcic doesn’t see it happening, noting: “There is plenty of pent-up supply coming to completion to at least match it.”
While the bank didn’t elaborate in this research note, it previously laid out a straightforward thesis: Millennials have hit their natural demographic peak, and demand was heading for a lull regardless.
Will they re-enter the market now that prices are back to where they were ahead of the demand surge? Nope. “Investors aren’t going to touch this market, taking on negative cash flow at a time when rents and prices are both falling,” Kavcic explains.
Toronto Condo Market Filled With Supply No One Wants
Falling investor demand has led to a wave of condo project cancellations and delays. That’s set to slow new supply inflows, but is it enough to offset the glut already on the way?
“Residential condo construction is going to fall off further given presale activity has dried up,” explains Kavcic. “The pipeline is full of inventory that end-users don’t really want. This will be the market rebalancing itself.”
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