Don Curren – Wall Street Journal

Canada’s high-flying housing market finally seems to be making a landing that will be harder in some areas–notably the oil-producing provinces of Alberta and Saskatchewan–than elsewhere, according to BMO Capital Markets.

Comment: It isn’t really. BC is doing well, Alberta and Saskatchewan not so much. Manitoba is okay, Ontario is booming. Quebec is always been crappy, and the Maritimes. It is a BIG country, different things are happening in different areas. You can’t compare Copenhagen with Istanbul, can you?

Except for Vancouver and Toronto. The latter in particular has a flight plan that doesn’t include landing anytime soon, BMO says. It says Toronto’s housing market has, for a number of reasons, disconnected from housing markets elsewhere and is likely to see continued gains, at least for single-family homes.

Comment: Disconnected? It was never connected to begin with. What happens in Halifax or Quebec City, Winnipeg or Calgary, it has NOTHING to do with Toronto. Except maybe, when businesses fled Montreal, they came to Toronto. When oil tanked recently, it put more money in the pockets of Ontarians. But the price of a house in Regina has nothing to do with condos in Toronto.

The health of Canada’s housing market remains a key concern for Canadians and their economic policymakers. Years of upward movement in housing prices, fueled by rock-bottom interest rates, have pushed prices far beyond historic norms and led some to fear a destabilizing correction. In December, the Bank of Canada said it believed the market was between 10% and 30% overvalued.

Comment: Inflation. Look it up. Chocolate bars have set record prices as well, if you compare them to the 1980s or 1960s. So what? The important thing is that monthly carrying costs, comparing average house prices and current mortgage rates to prices and rates from 30-35 years ago, we see that the monthly cost is almost the same. So housing costs are actually bang on historical norms.

But Canada’s housing market actually consists of a number of regional markets with very different factors at play. BMO notes that while Canadian prices are up 5% in the past year, in nearly three-quarters of Canada’s 26 largest cities they rose by less than 4%. Gains have been largely confined to Vancouver and Toronto.

Comment: Note that 75% rose less than 4%, but Toronto and Vancouver rose more than that. That means at least 22 of 26 markets saw prices rise last year. That is pretty solid performance across the board, if you ask me.

And the view that there’s been over building in Toronto is a misconception, BMO says.

Comment: It is an incorrect assumption propagated by the media. How can there be overbuilding when all the condos are sold? When 80% are sold before construction. When over 98% are sold by the time title changes hands. How is that building too many?

That’s because the structure of Toronto’s housing market is changing. The construction of condos reflects a push toward “intensification” that’s driven by legislation aimed at controlling urban sprawl.

Comment: It is actually driven by many things. Demographics, prices, commuting preferences, etc. Legislation is pretty close to the bottom of the list.

Provincial legislation passed in 2005 sets intensification targets and development restrictions around Toronto’s metropolitan area, BMO notes. It required that by the year 2015 – and in the following years – a minimum of 40% of all residential development must happen within already developed areas.

Comment: Have you seen the acres and acres of house building in north Pickering, in Oshawa, Brampton or Markham? There are tens of thousands of houses going into subdivisions across the 905. Trust me, legislation isn’t doing much of anything.

“In reality, most municipalities have seen intensification rates run well above the 40% mark in recent years,” BMO says.

With land in Toronto and other area cities scarce, developers are building condos instead. While there were 57,000 condo units under construction in Toronto at the end of 2014, only 7,200 single-detached homes were being built.

Comment: And in the 905, the values are flipped.

“That’s the widest gap on record since the 1960s, and the lowest non-recession tally for detached homes since the mid-1990s housing bust,” BMO says.

Instead of moving out of the city to the suburbs for more affordable properties, buyers are purchasing homes inside the city. Often, those are condos. But demand for detached houses in Toronto is ramping up in response to changing demographics, BMO says.

Comment: And the fact that there are no new houses being created in the 416. Freehold construction is pretty much restricted to infill housing, replacing an older home with a newer one. But it is still just one house, nothing was added to the supply.

Population growth in the 25-34 age group accelerated over the past decade, supporting the robust expansion of the condo market, but that growth is starting to soften. Growth in the 35-39 group is now accelerating and the 40-44 group is poised to pick up, and those two groups tend to look for detached houses rather than condos, BMO says.

As a result, prices for detached homes are climbing more sharply than condos; benchmark Toronto single-family prices have surged almost 25% in the last three years, while apartment prices have risen by 10%, BMO says.

“Combining these supply and demand fundamentals suggests that Toronto condo prices could be in for a prolonged period of stagnation, or very sluggish growth, while detached home prices outperform through the end of the decade, barring a major external shock,” it says.

Comment: I wouldn’t call it stagnation or sluggish growth. Condo prices will simply rise slower than houses.

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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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