Demand for new homes across the Greater Toronto Area (GTA) has reached unprecedented lows. Only 310 new homes were sold in April, down 72% from last year and 89% below the 10-year average. It was the weakest month on record, with nothing even close over the past 30 years of data (Altus Group). See, Toronto New Home Sales Crash 72% To A Record Low.
Prices are still falling with the benchmark (typical) new single-family home, down 5.4% to $1.53 million in April, and condos down to $1.02 million, 3.6% lower than last year. Both segments now trade near mid-2021 levels—a prolonged stagnation (shown below). Still, prices remain unaffordable, at 12 times (condos) to 18 times (single-family) the median GTA after-tax income of $85,000 a year.
At the same time, rents (that make up 6.2% of Canada’s CPI index) are falling as a flood of new properties comes on the market. See: Toronto-area subdivisions flooded by single-family home rentals:
Speculators who bought in some new Toronto-area subdivisions are flooding the market with single-family homes for rent, driving down prices in an effort to cover their costs.
“I don’t suspect these are investment properties by design, but rather by necessity,” said Michael Waters, CEO of Minto Group, who said that in his company’s experience rental-investors are more rare in the detached new house market, compared to the condominium space. “I suspect that what we’re seeing here is that buyers who bought in the boom – early 2021 and 2022 – are now taking delivery of their home. In many cases they may have been speculating based on the resale market, but they are not seeing the prospect to resell the home at a premium to what they paid.”
Better for renters but worse for owners who are commonly carrying properties at a loss. How long can one justify or afford to keep a negative-carry property when prices keep falling?
…So many competing rental properties makes it harder for each property to secure good tenants and top rents. “What isn’t being contemplated [by some investors] is that you’re buying into a neighbourhood that you’re going to have 50 other properties that go up for lease at the same time…most of these new house rentals will not come close to covering the costs of a typical mortgage in addition to the cost of taxes, insurance, utilities and maintenance.
It makes sense that Canadian lenders are increasing their loan loss provisions and making it harder for applicants to qualify for loans.
All of this should make the Bank of Canada more likely to ease Canada’s overnight rate faster and further than is currently priced into the Treasury market.
