John Clinkard – Daily Commercial News

A recent research report published by the Royal Bank of Canada could well raise some red flags regarding the health of Toronto’s housing market.

Comment: But the RBC CEO also says he is bullish on the Canadian real estate market – http://www.theglobeandmail.com/report-on-business/economy/housing/rbc-ceo-david-mckay-bullish-on-canadian-housing/article23397854/ – so that kinda kills the red flags.

The report notes that following the completion of a record 10,368 apartment units (mostly condos) in December of 2014, the number of completed and unoccupied condo units in the metro area jumped from 917 in December to 1,602 in January, its highest point since March of 1993.

Comment: Completed and unsold units, occupancy has nothing to do with it. And it does need to be pointed out that the unsold units, as a percentage of all new condos, is still the 10-year average range. The value only rose because more condos were completed. But the percentage is still the same. Everyone needs to remember that 95% of new condos are sold. And think about perspective, there were 31,000-odd condos completed from January 1, 2014 to January 31, 2015 – plus almost 92,000 resales in 2014 (houses and condos). Add in another 40,000 new house and condo sales in 2014 and you get over 160,000 new and resale transactions. And everyone is freaking out about 1,602? That isn’t even 1% of the total annual market. Forget about it.

However, before we declare that Toronto’s housing market is headed over a cliff, it is useful to assess the health of the key drivers of housing demand in the city in order to determine if they are about to run out of gas.

Comment: Why would you declare it heading off a cliff? It grows stronger every day, there is no cliff anywhere in sight.

First, despite the fact that over 10,000 units were completed in January, the fact that the number of completed and unoccupied multiple units only increased by 701 in the month suggests that the majority of the newly completed units are not quite ready to be occupied.

Comment: No, you have it wrong, you don’t understand the numbers you are writing about. First, 1,602 minus 917 is 685 – NOT 701. Second, those units are UNSOLD, not unoccupied. There is a good chance that a ton more SOLD condos are not occupied. It is moot. Lastly, that means that 93.4% of those 10,368 units ARE sold. That is a lot – 9,683 sold condos to be exact.

Looking forward, there are a number of indicators which suggest that the fundamental drivers of housing demand in metro Toronto will absorb the increased supply of new condo units coming onto the market over the next 12 to 18 months without to much difficulty.

Comment: The market only has to absorb 1,602 units. The rest are paid for and thus off the market. That is 90-130 a month over 12-18 months. As compared to almost 93,000 MLS sales, that is a drop in the bucket, statistically insignificant.

Second, despite the jump in completions in January, the ratio of completed and unoccupied multiple dwellings to units under construction at 3.3% is only slightly above its ten-year average of 1.9%.

Comment: Right, so with completions in 13 months that are usually seen in 24 months, and we are in line with long-term trends? There is no bad news in that. It means that everything is as it should be, as it has been historically.

Third, while the most recent RBC Housing Trends and Affordability report indicated that overall housing affordability in the Toronto CMA deteriorated slightly in the final quarter of 2014, this rise in the cost of carrying a home in the metro area is entirely due to higher prices for bungalows and two-storey detached dwellings.

Indeed while bungalow prices were up by 8.5% year over year and prices for two-storey homes rose by 9.1% year over year, the affordability of condominiums in the metro area measured by the percentage of pre-tax income necessary to service principal, interest, taxes and utilities actually improved slightly.

Comment: Condo prices in the 416 actually dropped a touch in February, down 0.9%. And as of mid-March, down another 0.8%. Combine that with a 20 point mortgage rate drop and condos are looking more and more affordable.

Fourth, despite the fact that the Toronto Census Metro Area is home to 17% of the country’s population, over the past ten years it has attracted approximately one out of every four immigrants to the country.

Comment: And they all need somewhere to live. StatsCan predicts that the GTA will gain another 3,000,000 residents in the next 26 years… over 115,000 each year.

Over the past several years there has been strong evidence that a significant portion of the new arrivals do not remain in the CMA but have decided to move further west to Alberta.

However, given the evidence of a slowdown in energy investment and a softening of hiring in the West in general and in the oil patch in particular, plus improving prospects for manufacturing in Central Canada, we expect that an increased proportion of new arrivals will choose to remain in the Toronto CMA thereby expanding the pool of first-time home buyers.

Finally, according to CMHC’s most recent Rental Market Report, the average vacancy rate for purpose-built housing was unchanged at 1.6% in late 2014 and the average condominium-apartment vacancy rate in the GTA declined from 1.8% in 2013 to 1.3% in the fall of 2014. This suggests that overall demand for rental accommodation in the GTA is quite strong and that owners of vacant condo units will have little difficulty in renting them if they feel it is necessary.

Comment: Which continues to fuel the condo market.

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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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