Condo sales and construction drop amid high interest rates and affordability issues

 

The Canadian condo market is experiencing a “significant slowdown” as sales of new units fell by 21 per cent in 2023 and new construction starts dropped by 34 per cent, according to a report by Urbanation Inc.

The report, which covers the markets of Toronto, Montreal, Vancouver and Calgary, attributes the decline to a combination of factors, including interest rates at a 22-year high, an erosion in affordability, tighter mortgage rules, and lower immigration levels due to the pandemic.

Shaun Hildebrand, president of Urbanation, said the condo market is facing a “challenging environment” that will likely persist for the next few quarters. He said the market needs a “rebalancing” of supply and demand, as well as a recovery in population growth and income levels, to regain its momentum.

However, Hildebrand also noted some positive signs for the condo market, such as a strong resale activity, a low inventory of unsold units, and a high level of pre-construction sales. He said these factors indicate a “solid underlying demand” for condos, especially in urban cores, where rental vacancy rates are low and rents are rising.

Hildebrand said he expects the condo market to “gradually improve” in the second half of 2024, as the economy recovers from the pandemic and the vaccine rollout accelerates. He said the market will also benefit from lower interest rates, as the Bank of Canada is expected to cut its key rate by 25 basis points in June or July.