A new report says Toronto's condo market could be headed for a slowdown amid high interest rates and a dearth of buyers.

"Recent economic indicators suggesting that Canadian homebuyers could be facing increasingly strong headwinds in the form of further interest rate hikes signal the end of a short-lived bounce in condominium activity in major markets across the country," RE/MAX Canada said in a report released this week.

The report looked at nearly 100 communities in seven major Canadian condo markets and found that despite stronger sales in recent months, sales numbers and price are still down when you compare January to August this year with the same period last year.

The GTA was included in the trend.

"After four consecutive months of sales surpassing year-ago levels, renewed concerns over higher interest rates are likely to slow homebuying activity in the Greater Toronto Area’s condo market in the coming months," RE/MAX said.

Overall, the volume of condo and townhouse sales in the GTA is down 12.8 per cent compared to the first eight months of last year, while the average sale price for condos and townhomes sits at $747,040, down 6.2 per cent from the same period last year.

"Affordability continues to be a major factor in the market, with high interest rates and the government stress test the primary roadblock to homeownership, as fewer first-time buyers can qualify for a mortgage, despite lower overall condominium values," the report said.



The report noted that condo sales have been ticking up in areas further away from Toronto.

"Those that are committed to buying, including first-time buyers, investors, and downsizers, are willing to travel further afield to realize value, as evidenced by the uptick in condominium sales in the 905 where buyers realize more bang for the buck and are not subject to the municipal land transfer tax applied in the 416-area code."

Nine districts in the 905 saw sales growth this year. They include: Brock, Clarington, Uxbridge, King, Georgina, Richmond Hill, Vaughan, Stouffville and Burlington.

RE/MAX noted that the areas which saw sales growth hit the sweet spot many first-time buyers are looking for.

"Thirteen of the 15 markets that experienced an uptick in sales had average prices that appeal to entry-level buyers— ranging from $558,000 in Georgina to $789,351 in Stouffville. According to TRREB MarketWatch, 70 per cent of year-to-date sales of condominium apartments occurred between $500,000 and $799,999 while 65 per cent of condominium townhomes moved between $600,000 and $899,999."

Meanwhile, sales of high-end condos remained strong, with sales of units above $2 million climbing 5.7 per cent compared to last year. Sales of ultra-luxurious condos over $5 million also saw a slight bump, with 11 sold this year, compared to nine in the same period last year.



While supply has been tight for much of the year, the supply of condos in the city's core rose in August. Upcoming assignment sales could add more supply to the market soon too, the report noted, as those who bought pre-construction units look to sell due to higher borrowing costs.

"Opportunities exist in the current environment as a growing number of assignments come to market," the report said. "Many of these buyers purchased condominiums during the pre-construction phase at a time when interest rates were at record lows. As the buildings near completion, many are unable to qualify at new interest rate levels, leaving them no choice but to sell their units."

Lower demand and increasing supply could add up to more price declines in the market in the coming months, the report says, but that will depend to an extent on whether a number of new projects move forward.  

"The only stop guard is the over 35 condominium projects slated for launch that may be placed on hold or even cancelled as developers pause and wait for condominium markets to stabilize," the report says. "The oversupply of listings will likely be absorbed as vacancy rates in the city remain low, but how quickly it will take to resolve will be dependent on interest rates and consumer confidence levels.

The report by the real estate company advocates a decrease to the government-mandated stress test which helps ensure that borrowers can afford their payments if rates go up.

"With the posted interest rates for a five-year, fixed-rate mortgage hovering at close to six per cent at each of Canada’s five major banks and more increases expected, a one per cent downward adjustment to the stress test would go a long way in helping younger buyers gain a foothold in today’s market," RE/MAX says.

Despite a softening in the condo market, condo sales still edged up slightly as a percentage of overall real estate transactions, making up 37.2 per cent of all TRREB sales so far this year. That compares to 36.3 per cent of all TRREB sales for the same period last year.

While condo sales fell most markets across the country in the first eight months of the year, two markets – both in Alberta – bucked the trend. Condo sales in Calgary climbed 22 per cent, while sales in Edmonton rose three per cent.