CMHC: Greater Toronto Condo Market Decline Expected to Be Milder Than Early ’90s

CMHC: Greater Toronto Condo Market Decline Expected to Be Milder Than Early ’90s

The Toronto region’s condominium market is currently experiencing notable challenges, bearing similarities to the downturn observed in the early 1990s. However, a report from Canada Mortgage and Housing Corporation (CMHC) indicates that various economic and regulatory factors are likely to mitigate the severity of the current situation. As new condominium sales plummeted to just 118 units in August—90% below the decade-long average—the region is facing a nine-year high in unsold inventory amid ongoing construction projects.

This downturn, categorized as a “deep freeze” by RBC’s assistant chief economist Robert Hogue, poses significant risks for development activities. The spike in unsold units has triggered a reduction in condominium starts, reflecting concerns within the industry about future operational capacity. The CMHC highlights that condo prices, when adjusted for inflation, have fallen similarly to the declines seen in the early 1990s; from a peak in early 2022, prices are down to 74.4 on a comparative index. This trend underscores the urgency for stakeholders to adapt to evolving market conditions.

Factors that differentiate the current downturn from past crises include a more diversified economy in the Greater Toronto Area (GTA), stricter lending regulations, and a persistent housing supply shortage. Unlike the 1990 condo market crash, which coincided with severe economic contraction and high unemployment, today’s economic landscape—with stable employment levels and anticipated mild recession—provides a cushion against severe price corrections.

Moreover, the mortgage stress test established since the last economic downturn has positioned borrowers more favorably, leading to reduced delinquency rates. Additionally, new regulations now require builders to pre-sell a higher percentage of condominium units before construction begins, helping to minimize speculative risks.

Despite these stabilizing factors, industry leaders express concern over the long-term implications of declining new construction. Justin Sherwood of the Building Industry and Land Development Association warns that the federal government’s ambitious goal of building 500,000 new homes per year may be unattainable if the current trends persist. He advocates for proactive measures to sustain housing construction and ensure that the market does not experience critical supply bottlenecks when demand rebounds.

In response, the federal government initiated the Build Canada Homes program, which allocates $13 billion toward affordable housing development. This initiative reinforces the necessity for ongoing investment and strategic planning within the sector. Ultimately, while the current downturn presents substantial challenges, the structural differences in today’s market may position it for a more balanced recovery in the future. Stakeholders must remain vigilant, adapting to the landscape in order to navigate these turbulent times.

📋 Article Summary

• The Toronto condo market is experiencing a downturn reminiscent of the early 1990s, but factors like a stable economy and stricter lending rules suggest the current situation will be less severe.
• August saw only 118 new condo sales in the Greater Toronto Area (GTA), a 90% drop from the 10-year average, resulting in a nine-year high for unsold units.
• Condo prices have fallen significantly, but the Canada Mortgage and Housing Corporation (CMHC) anticipates an uptrend in prices within a few quarters due to limited new construction and a housing supply shortage.
• Experts warn of risks to the development industry from decreased demand and suggest that prolonged inactivity may lead to a loss of expertise that could hinder future supply as demand rebounds.

🏗️ Impact for Construction Professionals

The recent downturn in the Toronto condo market presents both challenges and opportunities for construction professionals. With new condominium starts plummeting and inventory rising, project managers and contractors should reassess current project pipelines and adjust their forecasts accordingly. Streamlining operations to mitigate rising costs will be crucial during this lull.

Actionable Insights:

1. Diversify Offerings: Explore alternative projects such as residential, commercial, or mixed-use developments to offset the decline in condo demand.
2. Focus on Efficiency: Implement lean construction practices to reduce waste and improve margins, especially important in a time of shrinking demand.
3. Engage in Advocacy: Collaborate with industry associations to lobby for support measures, ensuring the federal housing goals remain achievable.
4. Enhance Skillsets: Invest in workforce training to retain institutional knowledge and avoid capacity loss, preparing for when the market rebounds.

Strategically, this means adjusting your business model to be more flexible and resilient, leveraging any downtime to prepare for future opportunities in a potentially recovering market. Stay informed and adaptable, as the market could shift toward a more balanced supply-demand scenario.

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