More Canadians have turned against condos as a good investment, and that could open the door for some younger homebuyers to get a foothold in the housing market.
A growing number of people (35 per cent in November versus 30 per cent in March) said condos used to be a good investment, but are no longer, according to a Léger survey conducted for Rates.ca Group Ltd., a financial products comparison website, while 56 per cent said they would not buy a condo for any reason.
The survey of about 1,600 adults also said 38 percent of men considered condos a bad investment compared to 32 percent of women.
The condo market has been under pressure for several years as rising interest rates increased construction and ownership costs and a glut of units and projects drove down prices.
Toronto has been at the epicenter of the condo market slowdown.
Sales of condominium apartments in the Greater Toronto Area and Hamilton fell to their lowest level in the third quarter since the same period in 1990, according to a recent report by Urbanation Inc., a real estate consultancy. Year over year, third-quarter sales declined 54 percent this year and plummeted 92 percent below the 10-year moving average.
“With the new condo market on track to record its worst year of sales in three and a half decades, project cancellations have skyrocketed,” Shaun Hildebrand, president of Urbanation, said in the report.
Despite canceled projects, the number of unsold completed units rose 142 percent to a record level, and the glut drove down sales prices.
Average sales prices fell 3.5 percent per square foot (psf) from a year ago and 9.6 percent from two years ago, Urbanation said.
Developer-owned condo prices averaged $1,199 psf in the third quarter compared to $867 for resale condos.
Investor profitability in the condo market has also evaporated, according to a
Canadian Mortgage and Housing Corp. report earlier this year.
But Léger’s survey indicated there were pockets of optimism. Nearly four in 10 people under age 35 said they would consider purchasing a condo compared to 27 percent over age 35 and 31 percent overall.
“The condo market has changed, and who drives demand has changed with it,” Victor Tran, Rates.ca mortgage and real estate expert, broker and agent, said in a statement.
Tran, who is also a real estate broker and agent, said he is seeing increased interest from first-time homebuyers in purchasing a condo.
“With greater inventory, fewer bidding wars and sellers more willing to negotiate, younger buyers now have opportunities they simply didn’t have a few years ago,” he said.
But condos might make more sense for first-time buyers, according to the latest Royal Bank of Canada Homeownership Affordability Index from October, with homeownership costs as a percentage of median household income at 36.2 per cent for a condo apartment, compared to 60 per cent for a single-family home.
“There is an opening (in the condo market), but there is also no rush to buy now,” Hildebrand said in an email.
He said mortgage affordability is the best since late 2021, while resale condo sales are 25 percent below the 10-year average, both factors that would be attractive to buyers.
But Hildebrand said there is fear that prices will continue to decline.
“For buyer confidence to improve, we need stronger economic conditions and less inventory pressure,” he said.
However, Urbanation expects condominium prospects to improve in the coming years.
“The condo market has clearly become depressed as it undergoes a difficult correction following the excessive growth that emerged during the COVID-19 pandemic,” Hildebrand said. “However, the lack of activity occurring today will almost certainly lead to a lack of supply in a couple of years, which will help restart the market engine.”
• Email: gmvsuhanic@postmedia.com
