Demand for detached houses remains strong, but the condo market is likely to slow

John Spears – Toronto Star

Greater Toronto doesn’t have just one housing market – it has several, says TD Economics, and they’re not all moving in the same direction.

“We expect homes sales and price growth to cool gradually over the next few years,” the bank says in a new report.

But some sectors will cool faster than others: “The condo market is likely bear the brunt of the housing slowdown,” the report says.

In fact, it says, condo prices are likely to drop 4% in each of this year and next, while single detached home prices edge 2% to 3% higher.

Comment: I have already show the simple impossibility of this claim in a previous post. Better to let someone with a bigger reputation than mine refute it.

Not everyone agrees with the bank’s assessment; Shaun Hildebrand, vice president of condo consulting firm Urbanation, calls the TD projections “extreme.”

Comment: Actually, no one agrees with anything coming from TD these days. Especially not from their CEO.

The TD report stresses that the GTA market has different elements, moving in different directions.

Prices for detached single homes rose 12% in the past year, it notes, but that wasn’t because of strong demand – in fact, the number of sales fell. Rather, it’s because there are few listings.

Comment: And TD thinks, with continually dropping inventory and ever more common bidding wars, that detached home price increases are going to drop over 80% from 12% to 2%? The market facts simply dictate a different story.

Even the detached home market isn’t uniform: Most of the deals are resales. The GTA saw only 9,000 sales of newly constructed single detached homes, out of 43,000 total sales. By contrast, in 2002, GTA buyers snapped up 22,000 newly constructed single detached homes.

While low supply supports strong prices in the single detached market, condominiums are a different story, says TD.

“In the new condo market, supply has been outstripping demand,” the report says; and that trend will only get stronger.

Comment: Um, okay. Condo sales rose almost 10% last month, with prices rising 6%. Sounds like demand is pretty strong. And when there are 96-97% of units sold in the average completed condo building, it sounds like supply is pretty equal to demand. Condo sales and prices have risen for 3 months now, maybe more. There are 65,000 units under construction at the moment – with 80% sales needed before construction starts. I just don’t see how anyone can turn that into a declining market. The numbers speak for themselves.

TD estimates that 70,000 new units will be completed this year and next. That’s twice the pace of the historical average. Most have been sold, but 9,000 are still looking for buyers.

Comment: Not even possible. From a possible record high of 20,000 in 2013 (which is itself 25% higher than the 10-year average of 15,750) to 35,000 this year? That means current projects have to double their speed, which is unlikely. Or, we need to double the number of construction projects. Double the number of workers, the cranes, trucks, materials and more. Double the speed of the city planning department, of permits and inspections and planning. All starting yesterday. Explain to me how that is possible.

Nearly all of the new condos are in high-rise buildings; those units are also competing with resale condos, which are both larger and cheaper than the new supply coming on the market, says TD.

Comment: And are older and more dated and not in the newest hottest buildings and neighbourhoods.

The price difference is substantial, according to TD, which says on average, resale condos are $100,000 less expensive. That works out to $300 per square foot for resales, against $545 per square foot for new condos.

Comment: $300/psf for condos is so wrong as to not even be worth refuting. Resales are around $430-450/psf these days. And new are $548/psf. The data is so flawed that anything said afterward must be discarded.

Hildebrand said in an interview that TD is over-reading the market signals. For example, it’s unlikely that 70,000 new condos will actually be delivered in the next two years, he said. “We’re not going to get anywhere near 70,000 completions,” he said. “The actual number of completions never comes anywhere close to what’s scheduled.” He expects the number of completions to be more like 40,000 over the two years.

Comment: If we set records for a couple of years.

Nor can he see condo prices declining 4% against 2013 levels. Prices last year were weak, he said, and they’ve actually rebounded this year. For the market to give up this year’s gains and drop 4% against 2013 levels would require a drop of something like 10% from where prices are now, he said.

“The trend just isn’t moving that way right now; the market is very much balanced,” he said.

Comment: Exactly.

TD says one area of condo strength remains in the Toronto core. “Over the last decade, a shift into the downtown core by young professionals has helped drive demand for condos in the area,” the bank says.

That’s not the case for the recent condo market in the suburbs, it says: “Condo sales in areas closer to the outskirts and 905 area experienced a sharp drop in condo sales.”

Comment: Except that 905 condo sales rose 19.6% last month. And rose 1.6% in January. And rose an incredible 461.% in December. Not quite what I would call a sharp drop.

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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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