New construction prices are dropping fast. Numbers from the Canada Housing and Mortgage Corporation (CMHC) show that new construction sale prices in Toronto have declined by various measures. Interesting enough, sales in July 2017 haven’t actually slowed down.

Median Price of New Construction In Toronto Declines Over 20%

The median price of new homes and condominiums sold has had a massive drop in Toronto. The median price fell to $675,000, a 20.59% decline from the month before. This also represents a 12.34% decline from the same month last year, the largest annual decline for a July since 1993. This brings the median price back down to January 2016 levels.

Average Price of New Construction In Toronto Declines 17.3%

The average price for new construction sales are also falling across Toronto. The average sale price fell to $862,878, a 17.3% decline from the month before. This also represents a 29.9% decline from the same month last year. Average prices aren’t great for determining sale prices, but they are useful for determining where dollar volume is concentrating (i.e. people are upgrading or first-time buyers are running the market).

Sales of New Construction Are Flat From Last Month

One of the most interesting numbers was the number of new construction sales, which were actually up… a lot. July 2017 saw 1,208 sales, basically flat from the month before. This is still a huge jump of 75% from the same month last year. The number of units sold in June and July 2017 are actually at a high not seen since November 2013, when 1,233 units were sold.

The sales numbers actually put these declining prices into perspective. Lower prices and higher sales is somewhat paradoxical to traditional supply and demand economics. Afterall, if you’re selling more units, why discount them at all? This means one of two things in my opinion, less affluent buyers are making the majority of new construction purchases right now, or they’re being sold to investors.

Less affluent buyers, like first-time buyers, are usually the last large group of real estate buyers in an uncertain market. Those that are well heeled don’t necessarily feel the need to chase the market, so they’ll take a pause when things are too expensive (i.e. the flood of high-level bank executives that sold their homes last year). First-time buyers worry that this is their last chance to get into the market, so they tend to hit the market whether they’re ready or not. This leads to a flood of lower priced units flying off the shelf.

The other possibility is a shift to investor grade units. Not the kind of “investor” that leaves them empty and treats them like gold bars, like in Vancouver. The kind of investor that has the intention of becoming a landlord, looking for a smaller place to rent to new tenants. With overseas marketing ramping up, boasting of units with guaranteed cap rates, this is a very real possibility. Anecdotally, Toronto realtors have also been telling us that Boomers are looking for investment condos, to keep cash flow coming in through retirement.

The decline in new construction prices while sales are ramping up is slightly confusing. The takeaway is that high-end and mid-ranged buyers aren’t demonstrating significant demand. We’ll have to wait and see if more affluent buyers have paused because they believe recent policy changes will drop real estate prices, or if the Toronto housing market has lost a little steam.