Will Lower Interest Rates Help The Toronto Condo Market?
If what goes up, must come down, then what goes down, must come up, right?
Is summer over already? Wifey hates it when I say that. This summer felt oddly short to me. I still remember the cold, grey, sunless winter that seemed to last forever and now that I'm finally getting used to warmer days and sunshine well past 8pm, it seems to be ending as quickly as it started. As I said in my previous blog post, there's nothing more "Canadian" than complaining about the weather, eh?
How's the condo market, you ask? Well, maybe you didn't but here's the scoop anyway. I can't remember the last time I saw the market this slow. Oh wait, I can. It was the Fall of 2023. And oh wait, the Fall of 2022 wasn't much better. And do you remember the Fall of 2020? That was brutal too. It seems like the Toronto condo market just can't seem to string together two successive seasons of strength. That being said, it has had an amazing ride over the past decade. I mean, the Spring of 2017 is still burned in my brain as the first time I can remember where everyone decided that a Toronto condo was the best investment ever. And inventory wasn't nearly enough to satisfy that demand and BAM! Condo prices were rising literally week over week. Your neighbour sold for $450k? Well, you'll get more next week. Watch. That continued for months until Kathleen Wynne's infamous Non-Resident Speculation Tax took the air out of the market in April 2017, and condos took a breather...but only for a short time. I remember working with condo buyers in early 2018 and coming home each night telling wifey "man, it's crazy out there! Multiple offers on everything and prices are jumping again." She astutely replied "didn't you say that last year?" And the market took off again. And again in the Fall of 2018, and again the Spring of 2019... I could go on. All until the Spring of 2020, which was, until that time, one of the hottest markets I've ever seen.
Then the world stopped. And everyone left the city. And condo prices fell. And fell some more. And kept falling. From my own analysis, condo prices fell anywhere from 10-20% in the span of about 9 months from the Spring of 2020 until the end of that year. It was brutal. You couldn't give away a condo. For sale or for rent. It was actually quite scary.
Until the clock struck midnight on December 31st, 2020 and all of a sudden, people wanted to buy condos again. January 2021 was the exact opposite of December 2020 in terms of condo demand and buyer confidence. It's like everyone said, at the same time, "Toronto isn't over. Condos aren't dead. And money is cheap to borrow. Let's buy a condo!" And the market took off again.
2021 was probably the hottest full year for the Toronto condo market that I can remember. The entire year was booming. Prices consistently rose all year and the Fall of 2021 was, up until that point, the best market in which to sell a condo. Needed to sell your condo in a week? I could do it. Want to set a record in your building? I could do it. Want to buy first and then sell? Well, of course. That was the only way to roll.
And then we all remember the ridiculously crazy, unsustainably hot market of early 2022. I don't even want to think about it. I did more condo deals in the Spring of 2022 than ever before (even my lawyer emailed me at one point with all the closings I was sending him and said "Adil, you're on fire!") and my head was spinning. Prices were jumping 1-2% per week and I started getting really, really nervous. Some prices just didn't make sense. Correction, a lot of prices didn't make sense. And all the while my buyer clients were really concerned. Not about the prices, but that if they didn't get into the market right then and there, they may be priced out forever. It wasn't normal. And thankfully, that frenzy didn't last. The Bank of Canada started to hike rates, and once we got into the summer of 2022, the market calmed down, and prices started to drop. But then it started getting scary again. Not because prices were no longer going up, but because prices were going down and that's something we hadn't seen happen in Toronto since what we all considered to be a once-in-a-generation event of 2020. I still remember telling clients in early 2021 that "if a global pandemic couldn't keep Toronto condo prices down, nothing can".
And then in 2022 the Bank of Canada looked everyone in the eye and said "hold my beer".
Condo prices fell into the back half of 2022. And the market was very, very slow toward the end of that year. In early 2023, we saw some signs of life. The Bank of Canada stopped raising rates and basically said "ok we're done" and everyone took that as the green light to jump back into the market. The Spring of 2023 was actually quite good! Demand was back, people weren't afraid that interest rates would just keep rising and market confidence pushed condo prices back up. Just like we've been accustomed to every Spring market.
But it was too good to be true. The Bank of Canada came back with a vengeance in the summer of 2023 and basically said "just kidding, here take two more rate hikes. And don't think we won't do it again."
And that, my friends, was the last time condo prices actually went up. For the past 12-15 months, Toronto condo prices have been on a downward trend. The market tried to bounce in early 2024, but any signs of strength quickly diminished and it's really not pretty out there right now. Inventory is at or near record levels and sales are at or near record lows. That's never a good combination. Prices are down anywhere from 5-10% from this time last year depending on the building/location and a very rough estimate puts prices back to where they were at this time in 2019. That's not to say if you bought in 2019 that you haven't made anything on your investment. Some buildings are up, and quite significantly. However, those are the exception and not the rule.
But as they say, it's always darkest before the dawn.
If rising interest rates were the primary reason for condo prices to fall, then dropping interest rates should help prices rise again, right?
By late Fall of 2022, just about every mortgage product out there was over 6%. And people were worried they'd go even higher. Rates dipped to the low 5%-range in early 2023 (and coincidentally or not, the condo market started showing signs of life again) but by the Fall of 2023, we started to see banks offering fixed rates back closer to 6% again. In the Spring of 2024, you started to see rates dipping back into the 5.5% range. And today? At last check, 3-5 year fixed rate mortgages (for end-user purchasers) were hovering around 4.59 to 4.79% (and even lower for folks with less than 20% down). And they're dropping. And everyone knows they're going to keep dropping.
If you follow me on Instagram, you'll know about my obsession with two things - 1) The absolute inventory of available condos for sale in the downtown core, and 2) Five-year Canada bond yields. These two things are, in my opinion, the only things that matter when it comes to figuring out when the condo market will recover. Not IF, but WHEN. It's funny how quickly the narrative in the media shifted from "Toronto's in a housing crisis and we'll never be able to build enough condos to end it, so expect prices to keep rising" to "nobody wants to buy condos anymore".
If there's one thing I've learned over my 9+ years doing this is that markets change, overnight, with little to no warning. And oftentimes with little to no explanation. It's easy to justify why something happened after-the-fact but nobody saw the craziness of early 2017 coming. It came out of nowhere. And why did the market suddenly take off in early 2021 when people still weren't moving back to the core? I was in the middle of it all and I couldn't explain it. It just happened and you either rolled with it or you missed out.
Right now, as far as I'm concerned, you can talk all you want about mortgage renewals and cashflow negative investors and high inventory levels and low sales. They're all true. But when the market turns, it will turn quickly. I have seen some serious deals out there in condo-land as astute buyers are starting to circle saying "now's the time to strike. This won't last forever". And as Warren Buffett famously said "be greedy when others are fearful". Interest rates are dropping. And condo inventory for sale, while still well above average, is actually dropping quite quickly (you won't hear the media talk about this until it's too late).
If you ask me, things are starting to position for a recovery. Maybe not a quick one. And maybe not tomorrow. But the stars are starting to align. Only time will tell.
Let's see what happens.
Have you checked out my previous blog posts?
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Your Toronto condo lover,
Adil Dharssi
Sales Representative
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)
Email: Adil@AdilKnowsCondos.com
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