Tara Perkins – The Globe and Mail

Neither weather nor worry is putting a chill on condominium construction.

Comment: That is because people aren’t really worried. Only the professional naysayers, the “experts” and the media.

Developers began building a surprisingly high number of condo units in February, despite freezing temperatures and fears of overbuilding in cities like Toronto, Montreal and Quebec City.

A new reading Monday on the strength of the condo market, particularly in Central and Eastern Canada, raised eyebrows among economists. And it came at the same time as a new forecast suggested that Toronto, the city that ignited talk of a condo bubble, is facing declining prices this year and next.

Comment: Why would Toronto be facing declining prices? Condo prices rose 6.0% in February, with sales rising 9.6%. That follows price increases of 7.6% in January and 7.6% in December. All through the slowest parts of the year, with the worst weather we have seen in years. And yet, prices kept rising. So why would Toronto condo prices suddenly start to fall later this year?

Across the country, according to Canada Mortgage and Housing Corp., initial construction of new homes climbed in February to an annual pace of 192,094, seasonally adjusted, above the 190,000 housing starts forecast by analysts and up from 180,481 in January.

Comment: Well there were a ton of condos sold in 2011, 2012 and even a few last year. They do need to build them at some point. But why are we comparing NATIONAL housing starts to the TORONTO new and resale condo market?

Economists say this current level is somewhat above the number of homes that are required based on demographic data about household formation. And the culprit is the condo market.

Comment: Oh, right. How does that explain the 96-97% of condos that are sold by the time the building is complete? If so many more than were needed were being built, wouldn’t there be more than a thousand units unsold? The argument for overbuilding makes no sense in the face of the facts. Resale condo sales rose almost 10% last month with prices up 6.0% and condo vacancy rates are staying in the low 1% range. Lastly, with 30,000-50,000 new households being formed in the GTA (depending who you ask) and 28,406 new home and condo sales in 2013, you can easily see how we are NOT building enough new housing stock to satisfy household formation. At least in Toronto and the GTA.

“As the spring housing market emerges and with building permits outpacing the level of housing starts for the 11th consecutive month in February, there remains some upside risk for housing activity to strengthen in the near-term,” said Royal Bank of Canada economist Laura Cooper.

Comment: Housing starts rise and fall month to month to month. It doesn’t mean a lot. Maybe comparing quarters to quarters in previous years, that might yield some information. It is like comparing resales in consecutive months. It means nothing as there are fairly regular seasonal cycles. So if sales rise from March to April, it doesn’t mean anything because it happens every year. Same as June being slower than May – happens every year.

“That being said, we anticipate that the recent moderation in resale activity will spill over into the home-building sector as overall housing affordability pressures will increasingly weigh on housing demand.”

Comment: SAY WHAT? There has been no moderation whatsoever in Toronto. Heck, we had months last fall where sales were up over 20% from the previous year. Maybe you could say the rate of increase has moderated, as we have gone from a 21% increase in sales to only 2.1% last month. But that is really playing semantics. The Toronto real estate market is anything but moderating.

Starts of detached homes in urban areas, townhomes and semi-detached houses were all down, noted Bank of Montreal economist Benjamin Reitzes. Starts of homes in rural areas were also down. Quebec saw the biggest leap in housing starts, while Atlantic Canada also registered strong gains, though Ontario was flat.

Comment: Yes, because fewer low rise homes are being built, in general. This is not news.

Construction of multiple units in cities rose this past month by more than 13% to almost 116,500, CMHC said, while starts fell by 2.4% in the single-detached category.

Comment: As I just said…

The numbers were even more surprising to economists who had expected that February’s weather could lead to a weaker-than-expected showing.

“After weather-related weakness sent a chill through Canada’s home-building sector in recent months, activity began to heat up in February with the six-month trend rate of starts increasing for the first time since October, 2013,” Ms. Cooper said in a research note.

The higher level of condo starts comes amid fears of a high level of condo completions in Toronto, Canada’s most populous city.

Comment: Except the “estimates” are complete ridiculous, made up, generally inane and insane.

All of the units in a condo building are included in the housing starts data at the time when construction on that building begins. But those condos will take years to be completed.

In the meantime, Toronto-Dominion Bank economists said in a report that they expect 70,000 new condo units to be completed in the Greater Toronto Area over 2014 and 2015, which they anticipate will push condo prices down by about 4% a year over that time.

Comment: But that is the most unrealistic and unreasonable prediction since Capital Economics said Toronto home prices would fall by 25%. The past 10 years have seen an average of 15,750 completions per year, with a high of just over 18,000. TD is saying that this 10-year trend is going to very suddenly increase by 222%? As I have said before, where are they going to find so many more workers, materials, cement trucks, cranes and drywall? If there are 1,000 cement trucks serving the new condo industry, TD is saying that there will suddenly be 2,220 of them – tomorrow. If there are 140 cranes serving 140 construction sites, TD is saying tomorrow another 171 will magically spring from the ground. If there are 150,000 workers building these condos, then TD thinks another 183,000 are going to show up for work tomorrow. That is the only way to increase completion rates so drastically.

“Toronto’s skyline of cranes is now about to transform into a skyline of condo buildings,” the report said.

Comment: Uh… look out your window. The skyline is already full of condos.

“In addition to the burgeoning supply of new units, the eroding economics of investing in rental properties are likely to put a significant damper on the region’s condo market,” it added, saying that the cost of carrying an average-priced condo has been exceeding the rent that can be earned on it.

Comment: Right. Which is why rental vacancy rates are around 1.3% and have not strayed far from 1% for years now. That is why there were bidding wars on rentals. That is why the good units are gone in a matter of hours. Condo rentals in MLS rose 18% last quarter, with rents rising up to 3.7%. Between MLS and private rentals, about 35,000 condos were rented out last year. How is that a market that is eroding in any way?

Urbanation Inc., which tracks data on new condos in Toronto, said it expects that the construction of some of the condo buildings that TD anticipates will be completed this year and next will be delayed.

In any case, the TD report’s predictions are much rosier than the significant downturn or market crash that some of the more bearish observers have been expecting, and it noted that the sharp increase in condo construction in the GTA comes amid a decrease in construction of detached houses.

Comment: And these same observers have been “expecting” this crash for years now. Hasn’t happened. So they were wrong. So we can stop talking about them now.

“We expect home sales and price growth to cool gradually over the next few years,” the report said. “The condo market is likely to bear the brunt of the housing slowdown, but there will be knock-on effects to other segments of the market.”

Comment: But all signs point to the opposite. In fact, the trend since 1996 has been the opposite.

A top Bank of Canada official noted this past week that the central bank is expecting household debt, house prices and housing starts to level off and then gradually decline, enabling the market to ease into a so-called soft landing.

This past week the Bank of Canada Deputy Governor John Murray noted in a speech that “household debt and housing sector activity are not only exceedingly elevated relative to past experience in Canada, they have also approached levels where real estate busts were observed in other countries.”

Comment: But this is not another country. And for the 100th time, you cannot compare Canadian real estate today to US real estate 6 years ago. Apples to Volkswagens, so different as to be different species.

But he added that the central bank’s base-case projection still sees “household debt, housing prices and housing starts leveling off and then gradually declining,” achieving a so-called soft landing. “Recent data, such as decelerating monthly price increases for existing homes, a declining number of housing starts and historically low rates of household credit growth, all support this view and indicate that the situation is stabilizing, although the risks remain elevated,” he said in the speech Thursday.

Comment: But that is not true in Toronto. I don’t think resale prices have fallen since the mid 1990s. Housing starts are increasing, as noted at the start of this article. So that statement makes no sense in light of the actual facts.

Economists said on Monday that they continue to expect that housing starts will decline, despite February’s strong showing.

“As the spring housing market emerges and with building permits outpacing the level of housing starts for the 11th consecutive month in February, there remains some upside risk for housing activity to strengthen in the near-term,” RBC’s Ms. Cooper wrote. “That being said, we anticipate that the recent moderation in resale activity will spill over into the home building sector as overall housing affordability pressures will increasingly weigh on housing demand.”

Comment: Nope!

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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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