High interest rates led condominium apartment sales to stall and prices to drop across the Greater Toronto Area in the first quarter of 2023, pushing many would-be buyers into the rental market. However, with rents on the rise, said potential purchasers may find renewed fervour in the coming months.

According to recent data from the Toronto Regional Real Estate Board (TRREB), 4,519 condo apartments were sold across the GTA in Q1 2023, a 42.9% drop from Q1 2022. The average sale priced declined 11.4% annually, to $700,566, while new listings fell 19.9% year-over-year. Listings spent an average of 27 days on the market, a 125.0% increase from a year ago.

Approximately two-thirds of condo sales took place in the City to Toronto, where the average price of $726,664 was down 10.3% compared to Q1 2022.

"Higher borrowing costs caused a temporary lull in condo buying activity. However, recent Ipsos polling for TRREB suggests that first-time buying activity will pick up noticeably this year due, at least in part, to double-digit rent increases over the past two years," said TRREB President Paul Baron.

"Despite increased interest rates, mortgage payments on a condo are now closer to the cost of renting for a lot of potential buyers."

As sales dwindled, rentals rose. According to TRREB, 10,525 condo apartments were rented across the GTA in Q1 2023, a 4% increase from the first quarter of 2022.

Despite an increase in supply -- listings were up 10.2% year-over-year -- market conditions remained tight enough to spur an "unsustainable pace" of rent growth.

In Q1, the average rent for a one bedroom condo apartment in the GTA jumped 15.1% annually, to $2,474, while the average rent of a two-bedroom increased 9.2% year-over-year, to $3,162. Bachelor units experienced the most significant annual increase, with average rents rising 16.2% to $2,014. The average rent for a three-bedroom was up 15.0% year-over-year, to $4,152.

The outsized rent increases, caused by heightened demand and constrained supply, will push many renters back towards the ownership market in the year ahead, said TRREB Chief Market Analyst Jason Mercer.

As first-time buyers return, both condo sales and prices are expected to rise throughout 2023. Without a a significant increase in supply, particularly in the form of purpose-built rentals, rents will continue to rise, too.