Opinion: With Toronto’s apartment market in a slump, renting might be better after all

Meaghan MacSween works in strategic communications.

In Toronto, we older millennials are a subgeneration that is divided when it comes to real estate. We either got in early or we hesitated and missed the boat.

I was in the latter category until last year when I was financially able to buy an apartment and decided to give it a try.

All the feedback I got from loved ones and industry people was unanimously pro-buy. And experts quoted in the media seemed to support—or at least assume—the positive outcomes of ownership. Conversations were held in the context of when buy – rarely or to buy.

For months I have been viewing units and getting pre-approval and locked into interest rate fixes. I was ready, but convinced that a few more rate cuts from the Bank of Canada would perfect my plan.

But then, in August 2023, something happened.

The landlord of my rental apartment put my one-bedroom unit with a den up for sale. He listed it at an average price for the current market. The unit received few viewings. My landlord lowered the price every now and then, but to no avail. Fall turned to winter, spring turned to summer. The unit is still up for sale, a full year later.

At one point during all of this I tried to solve both problems at once by making my landlord an offer. My offer was a fraction below his asking price. He didn’t budge.

It started to dawn on me. Why would I buy an apartment that, clearlycan’t sell at current market prices? And why would I look elsewhere and buy a similar unit that probably can’t sell at current prices either?

My landlord had understandably bought a new apartment when interest rates were low and values ​​were rising. I couldn’t blame him for keeping the sale price between $500 and $550 – he had already taken a big hit and lowered the price to far less than he had paid. Like many investors in the current Toronto market, it would be mentally difficult to absorb this kind of loss.

Sure, sooner or later people like my landlord will give up and sell for a lower price what would seem attractive to the tenants of my generation who wanted more affordable housing all this time. But we have to be careful what we wish for. As I considered my options in today’s market, I realized that owning an asset that keeps depreciating may not be the best investment.

It’s clear that both my landlord and I are slow to adjust to this new reality. But this isn’t just my apartment — it’s the Toronto apartment market in 2024.

“In the space of a year, everything has been turned upside down,” says Pino Di Mascio, a Toronto-based urban planner and partner at SVN Architects + Planners. “In Toronto, people typically rent in their 20s and 30s. Then they look to buy, assuming their home will appreciate in value — because that’s what they’ve been doing for 25-plus years.”

Tom Storey of Royal LePage Signature confirms what I’ve heard and read: Historically, the demand for condos in Toronto has come from first-home buyers and investors, and both groups are staying away. “Investors are less interested because of current interest rates,” he says, “and first-home buyers are having a hard time qualifying because of the mortgage stress test.”

A modest one-bedroom apartment costs $550,000 with taxes and fees, and costs about $3,200 per month in mortgage payments. Renting an apartment of this size in the first quarter of 2024 would cost an average of $2,400 per month. For investors, the math doesn’t add up.

The Bank of Canada is cutting rates now, but it would take a long time for rates to fall to a level where the apartment market could potentially recover. And it’s a big “if” whether the bank will continue to cut rates in the long term.

This leaves an unprecedented number of condos on the market. According to the Toronto Regional Real Estate Board, there is a six-month inventory of condos. That means that if nothing new came up for sale, it would still take six months to sell every condo on the market. A recent Urbanation poll hammers home this point, calling 2024 the slowest first half of the year for new condo sales in the Greater Toronto and Hamilton area since 1997.

“We’ve never seen a situation like this before,” Mr. Di Mascio said. “But if people start to realize that house prices don’t always go up, they may come to the conclusion that they’re better off renting.”