04/25/2018 21:54 EDT | Updated 05/02/2018 12:49 EDT

Toronto New Condo Sales Drop 66%, While Prices Soar 40% In Weirdest Correction Ever

Is it any wonder buyers want to sit this one out?

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The CN Tower peaks out from behind condos along Toronto's lake shore. Prices for new condos in the city have soared even as sales have dropped by nearly two-thirds.

See if this makes sense to you.

Sales of new condos in Toronto have more or less fallen off a cliff, down 66.5 per cent in March compared to the same month a year earlier. So what did prices do? They soared by nearly 40 per cent during the same period.

That's according to new data from the Building Industry and Land Development Association (BILD GTA), which reports that there were 1,649 new condos sold in Greater Toronto in March, down from 4,329 the same month a year earlier.

Keep in mind that last year at this time, Toronto's housing market was at the peak of its frenzy, making the comparison to this year look that much worse. But sales in March were still about 21 per cent lower than their long-run average. BILD called it "a quiet month" for the market.

But it wasn't quiet on the pricing side. The benchmark price for a condo sold in Toronto was $742,801 in March, up 39.7 per cent in a year. Part of the increase comes from the fact larger condos are being used to measure the benchmark price (900 square feet, up from 800 square feet a year ago). But the price per square foot also increased, to $825 from $666 last year.

So what gives? How can prices keep soaring even when sales are way down?

By and large, the industry says Toronto like the other super-pricey city in Canada, Vancouver is facing a supply shortage at the same time that buyers have seen their purchasing power reduced, thanks to new housing and mortgage rules.

"Recent changes to mortgage regulations are fuelling demand for lower priced homes while shrinking the pool of qualified buyers for higher-priced homes," said Gregory Klump, chief economist at the Canadian Real Estate Association, in a report earlier this month.

"Given their limited supply, the shift of demand into lower price segments is causing those sale prices to climb. As a result, 'affordably priced' homes are becoming less affordable while mortgage financing for higher priced homes remains out of reach of many aspiring move-up homebuyers."

It may be that some buyers simply haven't gotten the memo about Toronto's slowing housing market.

BILD president and CEO David Wilkes echoes the argument of many in Toronto's real estate sector, saying that restrictions on development are preventing housing supply from coming online.

"If we want to see more housing that people can afford, we need to address this region's housing supply problem," Wilkes said in a statement.

"And for that to happen, we will all need to work together to remove barriers to development, which include outdated zoning that doesn't support intensification, miles of government red tape, and lack of critical infrastructure."

Supply is actually increasing...

But is there really such a huge supply shortage right now, one that justifies a 40-per-cent price hike? There's no doubt that the number of single-family homes being built in the GTA has been dropping for years. But the supply of condos is actually on the rise this year.

Thanks to that, there were 12,457 new housing units available for sale in the GTA in March, up 22.7 per cent from the same month a year earlier. Still, to put that in perspective, that's well down from the more than 20,000 units available two years ago.

So it may not entirely be a supply issue; it may also be that some buyers simply haven't gotten the memo about the new reality of Toronto's slowing housing market, and are still willing to pay big premiums for a property.

Earlier on HuffPost Canada:

But if this soft patch continues, more buyers are likely to come to the conclusion that now is a good time to wait and see if prices will come down.

"The cumulative effects of government measures to cool the housing market are likely keeping many potential buyers out of the housing market," Wilkes said. "Many may simply be taking a wait-and-see approach."

With the market giving such contradictory signals, is it any wonder buyers want to sit this one out?

CORRECTION:An earlier version of this story stated that the average price of a new condo sold in Toronto was $742,801 in March. That is, in fact, the benchmark price.

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