Minimal movement in asking prices despite the market’s dire state
According to the report, there was a 66 per cent year-over-year decline in condo sales, with only 1,688 units sold — the lowest second-quarter result in two decades, excluding the initial months of the COVID-19 pandemic.
This means that in the first half of 2024, only 3,159 new condos were sold, marking a 57 per cent drop from the previous year and 72 per cent lower than the 10-year average. The sluggish sales have resulted in a ballooning inventory, with 25,893 units unsold by the end of the second quarter — significantly above the 10-year and 20-year averages by more than 60 per cent.
Despite the glut of unsold units, average asking prices have only dipped 2.6 per cent in the past year, and a total of 4.5 per cent over the last two years, settling at an average of $1,361 per square foot.
Urbanation President Shaun Hildebrand warned that the minimal price adjustments, contrasted with the severe sales decline and burgeoning supply, could bring the pre-sale market to a grinding halt.
The report attributed the stubbornly high asking prices to several factors, primary among them: high development and financing costs, making developers reluctant to slash prices and potentially incur losses. Many of these projects were initiated during market peaks when land prices were at record highs, while construction costs have remained elevated. Consequently, tighter margins are limiting developers’ flexibility in reducing prices.
Market dynamics also play a role. With 15,157 of the unsold units in pre-construction and 9,788 units under construction, developers are constrained by pre-set pricing strategies and financing conditions that hinge on maintaining certain price levels. Additionally, 948 unsold units in recently completed buildings complicate the pricing scenario, as developers are likely seeking to recover investments made during more robust market conditions.
Urbanation reports that the industry’s focus remains on closing out new projects, with 28,163 units completed in the four quarters ending in June of 2024. However, a significant drop in new construction starts — only 727 units in the quarter, a more than 20-year low — indicates that developers are pulling back due to the uncertain market conditions. The downward trend shows no signs of abating, with completions for the second half of 2024 projected to plummet.
“Completions are expected to continue trending down for the remainder of the year. The 4,788 units that were completed in Q2-2024 was a six-quarter low, with completions scheduled for the second half of 2024 totaling 10,205 units — a 38 per cent decline from the first half total of 16,455,” Urbanation said.