Katia Dmitrieva – Bloomberg

Who better to promote Toronto’s slumping condo market than the Material Girl.

Comment: Slumping? December condo sales were up 20.7% in the 416 and a whopping 46.1% in the 905. Prices were up 7.6% and 4.6%, respectively. That followed sales increases of 12.7% and 14.2% in November and price increases of 7.4% overall. How is that slumping? Heck, October also saw sales rise 24.5% over all, with prices up 5.9%.

Madonna, whose 2012 tour was the top-grossing act of the year worldwide with $296.1 million in revenue, will lead an “Addicted to Sweat” dance class next month at her Hard Candy Fitness studio inside Aura, a new 78-story condo tower in Toronto. The luxury development will also feature a sculpture-studded public gallery, a marble-lined lobby and a five-bedroom penthouse priced at C$18.4 million ($17 million).

Aura, Canada’s tallest condo, is a monument to Toronto’s 10-year building boom. The glass tower, with 985 apartments, is contributing to the 20,000 units set for completion in 2014, a record annual surge. And a total of 60,000 units are under construction in Toronto. The building spree that began in 2004 has already created at least 125,105 units and about 600 high-rises, including conversions, transforming the skyline of Canada’s biggest city.

Comment: Remember, the 20,000 “estimated” completions is only that, an estimate. And that is way beyond the 12,511 average since 2004, noted above.

Now, as condo sales tumble and price gains slow, supply may soon outrun demand. New condominium sales in the city of 5.6 million people fell 8% to 3,049 during the third quarter of last year from a year earlier, about 25% lower than typical third quarter totals over the past decade, according to Urbanation Inc., a Toronto-based real estate research firm. Prices rose 2% in the third quarter compared with the same period in 2012. That’s the slowest annual growth in eight years, according to Urbanation.

Comment: Condo sales are NOT tumbling. As noted, October resale condo sales were up 24.5%, November up 13.1% and last month rose 27.8%. New condos are down a touch, at 8%, but there have also been a lot fewer new condos for sale. Also according to Urbanation, Q3 saw the lowest number of project openings of any third quarter period over the past decade (11 projects totaling 2,557). So the sales drop can be directly attributed to there being fewer new condos for sale. Also of note, prices rose 2% for new condos during the same period.

Overshooting Market

“It is very likely that we’re overshooting,” said Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce. “When you have this extra supply entering the market, that’s when it will be tested.”

Comment: But the supply is NOT entering the market. There are only around 800-900 unsold condos of those completions. So even if 20,000 complete, barely 4-4.5% of them are unsold. That means that well over 19,000 of those condos are already sold.

While Toronto’s condo market cools, property prices for the country are poised in 2014 to continue their upward tear. The International Monetary Fund called Canada’s housing market the most overvalued among countries belonging to the Organization for Economic Co-operation and Development in a Nov. 26 report. Prices in Toronto have risen 39 percent from December 2008 to the end of 2013, according to Canadian Real Estate Association data.

Comment: As we have proven with the actual data, the Toronto condo market is NOT cooling. And prices for both new (+2%) and resale (+6% in December) are rising. Overall Toronto prices were up 8.9% in December and 5.2% for the year. An annual increase of 5.2% (completely in line with the 5-6% annual rise over the past 17 years) is not exactly what I would call an “upward tear”. A slow increase, yes, but not exactly “tearing along”. Also, back in December 2008, the average price was $361,415, while it was $520,398 last month. That is a 44% increase, according to the Toronto Real Estate Board.

Average Canadian home prices, including houses and high-rises, gained 12% to $561,328 in December 2013 compared with the year ago period, according to data compiled by Bloomberg from regional real estate boards. Prices in December advanced 8.9% in Toronto and 11% in Vancouver. That compares with a 4% gain in New York in the third quarter, according to the city’s board.

Comment: What regional boards did they check? And did they weight the numbers? The 4,078 sales in Toronto are different than the 2,029 in Montreal or the 1,953 in Vancouver and the 414 in Halifax. In fact, CREA itself says the price increase was only 10.4%. I question your math. And I also want to point out that Canadian real estate for one month does not compare in any way at all with New York state for 3 months. That is a completely faulty and flawed comparison. An entire country for one month against one state only, for 3 whole months. Uh huh…

Price Gains

“The average selling price in Canada will be up again in 2014 and by more than the rate of inflation,” Jason Mercer, senior manager of market analysis at the Toronto Real Estate Board, said in a Jan. 6 data release.

Low borrowing costs and a scarcity of single-family homes have driven Canada’s market to record highs. The country’s benchmark interest rate has been at 1% since 2010, the longest pause since the 1950s. The weekly three-year conventional mortgage has been below 4.05% since Sept. 26, 2012, according to Bank of Canada data.

Investors don’t expect the country’s overnight rate to rise this year, according to trading in overnight index swaps. Canadian inflation is projected to remain below the 2% mid-point of the Bank of Canada’s 1% to 3% target range through 2015, according to analysts’ estimates compiled by Bloomberg. The overnight index swap shows the market’s expectation for the one-year average central bank rate beginning in one year’s time.

Tighter Rules

Cheap mortgages and hefty house prices have helped push Canada’s debt to disposable income ratio to a record 165.75 percent, according to Statistics Canada quarterly data as of Sept. 30. It’s also above the historical average of 133.99 percent.

Comment: Again, wrong. The rate is actually 163.7 and rose only 0.6% in Q3. The gain was the smallest third-quarter growth rate in 12 years, and that follows the smallest gain in a decade the previous quarter. Not quite as bad as it first sounds when it is put in context.

“Elevated levels of household debt and high valuations in a number of housing markets remain a potential vulnerability,” the IMF said in its report.

Finance Minister Jim Flaherty said on Jan. 5 that the government would tighten mortgage rules again “if we have to.”

Flaherty attempted to douse the market four times in the last five years, with the most recent move in June 2013. He cut the maximum amortization period on mortgages the government insures to 25 years from 30 years and lowered the maximum amount homeowners can borrow against the value of their homes to 80% from 85%. The Office of the Superintendent of Financial Institutions also introduced tougher standards for lenders.

Comment: And the market kept on chugging…

Flaherty sees the housing market cooling as the stiffer mortgage-lending rules slow borrowing.

Comment: Nope. Didn’t happen. Should have happened, but didn’t.

Construction Jobs

Housing continues to add to the economy. Construction jobs increased 1.9% in December from the year-ago period, and employment in the financial sector, including real estate and leasing, gained 1.3% in the same time period as total unemployment increased, Statistics Canada said in Ottawa today. The weaker job market, tepid exports and sluggish business investment are hampering economic growth as the housing market continues its advance.

Comment: Slow down. The unemployment rate bumped from 6.9% to 7.2% after steadily dropping from a recent high of 8.7% in late 2009. It is still well below the 1966-2013 average of 7.75%. Our dropping dollar is also starting to boost the export market. Again, perspective people!

Phil Soper, chief executive officer of Brookfield Real Estate Services in Toronto, said he doesn’t expect more housing regulation.

“I’d say there’s still room for prices to grow,” Soper said. “We have to be very careful with intervention because if it’s a little too heavy we could kill the goose that laid the golden egg.”

Crash Unlikely

In Toronto’s condo market, the slowdown probably won’t lead to a crash. About 96% of the 20,000 condo units set to hit the market this year are already pre-sold, said Shaun Hildebrand, senior vice-president at Urbanation.

Comment: As shown above, the Toronto condo market is not slowing down. And, I also showed stats that agree with Mr. Hilebrand, in that 96% of new condos are sold by the time they are completed. So all the talk of “supply entering the market” are just plain wrong. But the words are spun in a way to make people think that suddenly there will be 20,000 new condos for sale on MLS next year. In a market of 87,111 sales, that would make a huge impact. But the truth is more like 800 will hit the market, if they all go on MLS. Many won’t, the builder will sell them through sales centres. Even if they all went on MLS, that works out to maybe 65-70 a month. With 4,078 sales in December, a slow month, that is barely a 1.6% blip. Of sales, never mind total listings.

About 60% of Toronto condo buyers are investors. Most of them will hold onto their units if they have trouble selling, and possibly rent them, rather than drastically drop the sale price, Hildebrand said.

Comment: That is total hogwash. No one knows for sure how many are investors, NO ONE. Most reasonable guesses put the number closer to 25-30%. And we need those rental units, there are no apartment buildings being built. In Q3, there were 6,541 condos rented through MLS. Probably the same amount again leased privately. So there could be 12,000-13,000 condos renting per quarter, some 50,000 per year. And a good chunk of the 30,000-50,000 new households being created in the GTA every year are renting. Even if 75% of them buy, we still need a minimum of 7,500 new rental units every year, probably more like 10,000 or more. Even if 60% of 20,000 new condos are up for rent, that only satisfies 24-40% of the new household demand every year. If more than 40% are rentals, then we are not even meeting demand. I would say 50% are renters and that 30% of condo buyers are investors. In that case, we are only providing 6,000 units for 9,000-15,000 households. That might explain why the vacancy rate in Toronto hovers around 1%.

Tal of the Canadian Imperial Bank of Commerce, said a constraint on land in Toronto that’s driving up the price of detached houses is keeping demand for condos from disappearing.

Comment: And does not provide land for houses to be built.

“It’s a market that will correct,” said Tal, who estimates that condo prices may fall up to 15% in Toronto this year. “Sales are already sliding down, dramatically in fact. Prices will eventually follow suit.”

Comment: Seriously? I want some of whatever he is smoking. Condo prices rose 5.9% in October, 7.4% in November, 6.0% in December and so far 10.3% as of mid-January. But that trend is suddenly going to reverse by 20-25% and plunge 15%? I don’t think so… As for sales, as noted above October resale condo sales were up 24.5%, November up 13.1% and last month rose 27.8%, with mid-January still showing a modest increase of 1.1%. Where are these sliding sales he talks about?

At Aura, workers are now putting the finishing touches on the penthouse suites, which start at $1 million. Montreal-based Canderel Inc., the building developer, began selling condos in the tower in around 2008 and about 99 percent of them are purchased, according to Riz Dhanji, vice-president of sales and marketing at Canderel’s residential group. The penthouses are the only units still up for grabs.

Madonna’s Studio

Madonna, who cofounded Hard Candy Fitness, has locations in eight cities including Berlin, Moscow and Sydney. The performer will appear at Aura on Feb. 11 with condo owners selected to try out for the fitness class. The appearance may help sell those penthouse units, said Dhanji.

“We’re very excited to have Madonna’s gym,” he said. “We’ve had incredible interest in the building’s remaining units, especially the penthouse suites. This will only draw more attention to that as suite owners get access to this world class gym.”

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

Laurin Jeffrey is a Toronto Realtor 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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