Toronto’s unsold condo rate has reached ‘an incredible level’: expert

Ron Butler, principal broker of Butler Mortgage, shares his outlook on Canadian housing market, with a focus on what's happening to Toronto's condo market.

In Canada’s largest housing market, the number of unsold condominiums keeps rising.

“It has reached an incredible level,” Ron Butler, principal broker at Butler Mortgage, told BNN Bloomberg in a Monday interview.

“We have about one full year’s inventory and that seems to continue up and up and up in terms of listings. There’s really no sign that it’s going to level off or that there’s going to be any reduction in the near term.”

Butler said there’s been “severe overbuilding” in the Toronto condo market for a number of years, specifically when it comes to smaller units.

“The tiniest of tiny condos,” Butler said. “It’s weird that in a country like Canada where there’s been a consistent housing crisis for the last 10 years that if you build a very bad product, people won’t take it, it’s as simple as that.”

Butler said many of the unsold condos on the market today are ones designed for investors or real estate speculators and are not practical for most families.

“They are roughly the size of large hotel room, only meant to be rented out, and there’s been simply a massive overbuilding of non-family units,” he said, noting that many of the condos for sale in Toronto currently are 500-square-feet or less.

Butler said that in Toronto, there is now roughly a 30 per cent failure rate for condo closings, meaning many buyers are simply walking away from their pre-construction deposits.

“Some of those people will be litigated… but developers let the rest of the condo units close and then a few months later they start to sell the other units that didn’t close at a substantial discount into a weak market with more and more inventory pouring in all the time,” he said.

Butler noted that condo market trouble isn’t just contained to Toronto, and that markets in B.C. and Alberta are also showing signs of weakness.

In Surrey, B.C., the market is full of pricing errors, he argued.

“When you’re looking five or six years into the future and saying yes, I believe that the new price level will be ‘X’ six years from now and it is nowhere near ‘X,’ you run into a severe problem,” said Butler.

“Because there’s stuff just down the road that’s selling for 25 per cent less, so how do you justify that extremely high price? It just doesn’t work.”

Even Calgary, which has historically avoided the type of market pressures seen in larger cities like Vancouver and Toronto, is showing signs of overbuilding in its condo space, Butler said.

When looking at the overall housing market in the Greater Toronto Area, Butler said that the downtown core has yet to see any significant price reductions from recent levels, but that isn’t the case in the suburbs.

“There are significant reductions if you look at Durham (Region), the far regions of Peel (Region), and in York Region. There’s definitely been… absolutely a substantial price reduction, in some cases 15 to 20 per cent down,” he said.

Butler noted that markets in the Hamilton and Niagara regions in Ontario have also seen recent reductions in price.

For housing markets nationwide, immigration and interest rate levels will be important factors to watch moving forward, he said.