Thousands of units being built in Toronto and Vancouver, but that won’t help renters

CBC News

A record number of condominiums are scheduled to go on the market in Toronto in 2013 and 2014, but that doesn’t mean the real estate sector is headed for a crash, according to analysis from CIBC economist Benjamin Tal.

Comment: Wrong again. There might be a record number of condo COMPLETIONS. But that does not mean those condos will all go on the market. Why does everyone get that wrong? New project launches are down and unsold inventory is down. Completions will be high for a year or three, but then the huge sales of 2011 will have been built and we will go back to normal numbers. Of COMPLETIONS.

There is excess supply in both Vancouver and Toronto, Tal said in a report released Thursday, but even if half of the new units are rented out, it will barely nudge vacancy rates for renters.

Comment: No, there is no excess supply in Toronto. When there are maybe 800 unsold completed units in a year of 19,000 completions, that means that 96% of new condos are sold by the time the building is built. Maybe you could make an argument for 4% excess, but that is about it. And when you talk about 19,000 new condo completions, add that to the 87,111 resale transactions in 2013 and you have a market of at least 106,000 units in a year. And we think that 800 unsold units out of that makes for “excess supply”. Right.

Vacancy rates, already very tight in both cities at 1.7%, could edge upward by 0.3% to 0.4%, too little to ease pressure on rents, the report said.

Comment: Oh. My. God. Toronto’s “very tight” rental vacancy rate of 1.7% might go to 2%? Holy moly, I guess that means the Toronto condo market is going to collapse.

No big price drop

Tal points out that 75% of the new housing starts in Toronto are in multiple-unit buildings, and 35,000 units could come on the market by 2014.

Comment: But they won’t. That is like suggesting a meteor might hit Toronto tomorrow. Even if we have 19,000 completions in 2013 (the numbers aren’t in yet) that would be a big departure from the 15,750 annual average over the previous decade. To suggest that this year would see more than double the average number of completions is ludicrous. There are not enough workers, nor enough material, to have more than 20,000 completions in a year. For completions to go from 16,000 to 35,000 would require the entire construction force to more than double. Twice as many workers, twice as many cranes, twice as many cement trucks. And double all the concrete and re-bar and drywall. How is that even possible?

That could outpace household formation, which is slowing as fewer new immigrants move to the city and young Canadians continue to delay moving out of their parents’ homes.

Comment: With 30,000-50,000 new households being created in the GTA every year, even 35,000 condo completions would be at the lower end of housing demand.

But Tal, who has repeatedly said that Canada is not headed for a housing crash similar to what happened in the U.S., believes there will be only a moderate decline in condo prices. He calls the market in Toronto and Vancouver “reasonably balanced.”

Comment: Which only suggests that we won’t have double the number of completions, putting downward pressure on prices. A balanced market, by definition, is one where supply and demand are close to equal. If there is excess supply and new housing outpacing household formation, then a balanced market is not possible. We seem to be getting conflicting opinions from the same person here.

He disagrees with the Bank of Canada, which issued a report last June worrying that a falling condo market could destabilize the Canadian economy.

Comment: Sure, it could. But it isn’t going to fall, so it does not matter.

“But a careful analysis of the magnitude of the projected supply/demand mismatch suggests a much gentler adjustment than feared by many,” Tal writes in his report.

Comment: Because he knows the truth, that there is no potential excess supply, there is no potential falling condo market, there is no potential for supply to exceed demand. He admits as much. Thus, he knows that the adjustment, if any, will simply be the possibility of prices rising less this year than they did last year.

He does predict a turning point in 2014 when interest rates rise. That may force development to slow as less credit-worthy developers face difficulty getting financing.

Comment: IF they rise. Some banks have been flirting with bringing back the 2.99% mortgage. That is not a rise from current rates, to be sure.

“Canadian real estate bears are patient,” Tal writes. “For more than half a decade, they have been waiting for the inevitable crash in the Canadian housing market, only to be disappointed by a defying market.

Comment: Patient or wrong? Making the same prediction year after year and being wrong year after year does not make you patient. It makes you wrong. Even Garth Turner gave up his doomsaying ways and finally admitted that the Toronto real estate market is booming and is likely to continue to do so.

“The market will be tested by higher interest rates. But as things stand now, those bears will have to continue to wait as interest rates are likely to remain low well into 2015.”

Comment: So rates might rise this year, but then he predicts they will remain low until next year. You can’t have it both ways, you have to pick one side or the other.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.
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