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Sondhi said the trend is tied to factors such as a wave of newly built condos hitting the market, elevated borrowing rates that have made it difficult for some buyers to close on their mortgages, and investors looking to sell properties as declining rents and negative cash flowmake them unprofitable.

"The relatively elevated interest rate backdrop means that the gap between the rate of return from a condo in the GTA ... and from a risk-free' government bond has narrowed," he said in the Sept. 5 report.

"This may have reduced the incentive to hold a condo as an investment, although the recent drop in yields could be helping to re-widen this spread."

Sondhi's report showed there were around 19,000 condo completions in the region between January and July of this year, up from about 12,000 during the same seven-month period in 2023 and 10,000 the year before.

The pace suggests this year could see "record high" condo completions in the GTA, said Brendon Cowans, a sales representative for Toronto-based brokerages .

"You can just imagine all of this supply coming in a high interest rate environment. It's not a lovely combination," he said.

Active condo listings across the GTA were up 63.9 per cent in July from the same month last year, growing from 5,416 to 8,879, according to data from real estate firm Zoocasa. The City of Toronto has seen a similar jump, with active condo listings increasing year-over-year by 61.5 per cent in the same period.

Although the GTA leads the country in active listings gains, the trend is in line with other major cities across Canada. Year-over-year active condo listings rose more than 40 per cent in London, Hamilton-Burlington, Mississauga and Ottawa in Ontario, as well as Vancouver. Montreal and Calgary each saw growth of about 23 per cent.

Zoocasa said that as interest rates have increased over the past three years, the cost of holding onto investment properties, like condos, has also increased.

"Some of the carrying costs for these properties, especially people who bought within the last five years and were on variable rates, they saw the carrying costs shoot through the roof," said Cowans.

For buyers, however, the influx of supply has meant more favourable prices. Condo prices fell two per cent year-over-year in July across the GTA, according to Zoocasa, compared with a one per cent decrease for townhouses and a 0.1 per cent decrease for detached properties.

Condo prices in the region have also declined by around five per cent since the third quarter of last year, said Sondhi, who predicted a "gradual recovery" for sales as supply and demand become more balanced.

He forecasts that condo resale prices could decline by mid-to-high single-digits through the early part of next year.

"There are risks to the near-term condo price outlook on both sides," he noted in the report.

"On the downside, the wave of condos slated for completion will continue to add to supply. On the upside, condo sales could react more aggressively to falling rates than what we’ve assumed, or investors could yank their properties off the market, tightening conditions at a faster-than-anticipated rate."

Earlier this month, the Bank of Canada cut its key lending rate by a quarter-percentage point to 4.25 per cent. While that marked the bank's third straight cut, governor Tiff Macklem cautioned it may adjust the pace of those reductions this year as conditions warrant.

Sondhi said interest rates will likely remain "relatively elevated" into 2025 amid continued affordability challenges, thus holding back activity.

Others are more optimistic things could turn around sooner.

Debbie Cosic, founder and CEO of In2ition Realty, said she believes oversupply conditions are temporary.

"We're expecting next year to be a very strong year because we believe interest rates will continue downward," she said.

For buyers, she said now is the time to lock in a purchase and take advantage of incentives being offered.

"We believe the oversupply is coming from the public just standing back to see when the market hits rock bottom," said Cosic.

"We believe it's hit rock bottom."

Cowans said the number of rate cuts by the Bank of Canada over the next year and a half will be key to the equation.

He said with condo completions projected to slow over the next few years, sales could rebound over the longer term.

"I do see things picking back up in the future. I don't expect it to be super fast," he said.

"I can anticipate increases as more rate cuts continue to happen … and in 2027 I just think it's going to be madness. If people can hold on for the next two years, even three, it's going to be a drastically different story."

This report by °µÍø½ûÇø was first published Sept. 11, 2024.