Toronto condo buyers are out there, but ‘taking their time’

Some shafts of light have started to break through the air of gloom that has been hanging over Toronto’s condo segment in recent months.

“It feels lighter,” says Christopher Bibby of the atmosphere in September. Consumers seem slightly more upbeat, in the opinion of the broker with Re/Max Hallmark Bibby Group Realty.

Languishing condo units have been finding buyers, Mr. Bibby says, but the action is inconsistent.

In some cases, a unit will sit for 60, 90 or 120 days, then suddenly sell with more than one offer.

“On others we’re still not even getting showings,” he says.

At 449 Walmer Rd., a two-bedroom, two-bathroom unit was listed for four weeks with an asking price of $999,900.

The 1,501-square-foot unit near St. Clair Avenue West and Spadina Road received two offers and sold for $99 above the asking price.

Mr. Bibby senses that some buyers are keeping an eye on listings to see if the seller will reduce the asking price or become more willing to accept a lower offer. They hint they are only mildly interested in the property, but as soon as they learn another buyer has submitted a bid, they jump in.

“The buyers are out there – they’re taking their time.”

In August, sales in the Greater Toronto Area real estate market dropped to their lowest level for that month since 2000. Condo apartments and townhouses in the central 416 area code were particularly quiet while inventory remained bloated.

Sales of condos in the core fell 14.8 per cent last month compared with the same month last year, according to the Toronto Regional Real Estate Board. The average price for a condo unit in the 416 decreased 6 per cent in August compared with August, 2023.

TRREB president Jennifer Pearce points out that first-time buyers are especially sensitive to changes in borrowing costs.

If mortgage rates continue on a downward trend this year and next, she expects an uptick in purchases by first-time buyers, including in the condo market.

Mr. Bibby says one cohort of buyers is testing the water in the condo segment with lowball bids.

“The buyers are trying – let’s see how desperate they are,” he says. “I think they assume everyone needs to sell or why else would they be on the market?”

But Mr. Bibby says many sellers are not under any financial strain and they are quite willing to be patient, pointing to the Garment District, where one listing on Camden Street sat for 18 months.

Mr. Bibby figured the fashionable location close to the new Ace Hotel and Waterworks Food Hall would be a draw for buyers, along with the 800-square-foot terrace.

The unit with an asking price of $1.398-million recently sold for $1.335-million.

“We knew it was just a matter of time.”

At the Tip Top Lofts in a converted heritage building on the waterfront, Mr. Bibby listed unit 305 in the south-west corner of the building.

The asking price of $1.325-million was tested for 85 days as buyers lobbed offers far below asking and articulated reasons the unit was overpriced.

“We were patient,” Mr. Bibby says. Recently the seller accepted an offer of $1.3-million.

“If you wanted to be in a conversion – especially a conversion down by the water – this is your only option.”

In other instances, the sellers have bought another property and they need to sell a condo unit in order to close the deal.

“If you need it sold in 30 days and you have no backup plan, you absolutely have to take what people are willing to give you,” says Mr. Bibby.

He adds that all of the buyers he has dealt with recently are people who plan to live in the unit – often because they are empty nesters selling a larger house.

“I feel that the investor market is still quite dormant,” he says, “and it will stay that way a while longer.”

As for sellers, Mr. Bibby is receiving calls now from condo owners who are wondering about the timing of a sale. Many are talking about waiting for the spring when they think the market will be more robust, he says.

Many are betting that prices will go up if market conditions improve or interest rates fall farther.

Perhaps they are right, Mr. Bibby says, but he cautions that factors that sway the market are difficult to forecast.

Pundits could not have predicted the COVID-19 pandemic, he points out. Buyers in 2021 could not foresee that the Bank of Canada would hike interest rates 10 times starting in 2022.

“There are things that are outside our control. People have to weigh the risks.”

Luke Dalinda, real estate agent with Royal LePage Real Estate Services, says some buyers believe that real estate prices will increase as interest rates decline.

As a result, they are looking to purchase before 2025, when they figure the market will ramp up.

He has been involved in a flurry of recent transactions in the city’s west end.

But not everyone shares that view: the agent says a “herd mentality” is still apparent in some buyers. They are betting that prices have farther to fall.

Mr. Dalinda is urging sellers to hold firm to their prices.

At One Palace Pier Court, for example, two-bedroom unit 4010 sold for the full asking price of $999,000 after 30 days on the market.

A one-bedroom unit at the same address was listed with an asking price of $649,000 and sold after three days for $630,000.

At 33 Shore Breeze Dr., unit 3108 was listed with an asking price of $599,000 and sold for $575,000 after seven days.

The buyers Mr. Dalinda sees circulating these days are looking for usable layouts, he says.

“Smaller ‘shoebox’ condos, on the other hand, will continue to struggle due to their unusable layouts, cheap finishes and shoddy construction,” he says.

Rishi Sondhi, economist with Toronto-Dominion Bank, believes the oversupplied condo market will act as a drag on average home prices in the GTA and Ontario.

He notes that the interest rate environment has significantly improved for borrowers in Canada and, while housing activity is stirring, the sales gains have so far trailed the activity that economists would typically expect.

Mr. Sondhi says the surprisingly subdued performance likely stems from two factors: while rates have come down, affordability remains strained. At the same time, central bankers have signalled that rates are set to fall farther.

“This is keeping potential buyers temporarily sidelined as they wait for additional cuts,” he says in a note to clients. “The flat trend in Canadian average home prices since the summer means they haven’t really been penalized for that choice.”