Investors flee Toronto condos as market shifts to 1st-time homebuyers: report

Toronto’s condo market is undergoing a major transformation, and investors are heading for the exit.

As prices cool and mortgage costs remain high, many condo investors are now selling off properties they once hoped to flip for profit — and in some cases, at a loss.

In their place, for the first time in recent years, new homebuyers are finally finding an opening into the market to purchase practical first homes.

“The housing market is a lot slower than what it used to be,” said Victor Tran, mortgage and real estate expert at Rates.ca. “Sales volume has decreased significantly… particularly in the condo market segment.”

Condos, once seen as a guaranteed investment vehicle, are no longer delivering the returns many investors had banked on, cited as an “extremely challenging” investment now.

With average prices sitting around $655,000 and borrowing rates in the 3.9-4.3 per cent range, rental income often doesn’t cover the full carrying costs, especially when factoring in condo fees, property taxes, insurance, and utilities.

“With all those costs lumped in together, it’s going to be more than what an investor can charge for rent,” Tran told Global News. “It’s unlikely that the investor will be able to walk away with a positive cash flow every month.”

Some investors who bought during the market peak in 2021 and 2022, when bidding wars were common and mortgage rates were below 2 per cent, are now listing properties for less than they paid.

“They bought at the peak, thinking prices would keep going up,” said Tran. “Now they’re cutting their losses.”

“It just doesn’t make sense for them to look into real estate right now, especially with the uncertain times that we’re living in with the trade war and increasing unemployment as well too,” he added.

The drop-in investor activity is reshaping the market, according to a report released by Rates.com

As listings increase and competition cools, the balance of power has shifted to buyers, particularly first-time buyers who were previously priced out.

“For young buyers who can qualify, the market makes condo ownership more attainable than it’s been in years,” Tran explained.

A buyer putting 15 per cent down on a $655,000 condo today would be looking at mortgage payments of roughly $2,900 per month, similar to average rent for a two-bedroom unit in the GTA. “Lower purchase prices mean smaller down payments and more flexibility in how buyers structure their mortgage,” added Tran.

The contrast between today’s market and the boom years is stark. With more listings available, buyers are no longer pressured to make unconditional offers or enter bidding wars.

“It’s definitely a buyer’s market in many segments,” Tran said. “Buyers have more negotiating power… and they can also make offers with conditions.”

Those include financing clauses and home inspections, protections that were often waived when competition was fierce.

However, Tran still advises new buyers to focus on resale condos, rather than pre-construction units, which are facing delays, rising costs, and uncertainty.

In terms of mortgage payments, Tran says both parties will be equally hit. “The hot topic that a lot of people have been talking about are mortgage renewals,” Tran said.

While first-time buyers have more breathing room, the overall affordability picture remains bleak. And with many homeowners approaching mortgage renewals, some will face payments two to three times higher than their original terms.

“There’s a record number of Canadians coming up for mortgage renewals this year and next,” Tran said.

“They will be renewing into rates that are easily double or triple.”

That pressure, combined with reduced investor demand, is expected to keep supply high, at least in the short term.

Source: Global News