Canadian real estate to slip as supply grows, demand wanes: Scotiabank
Rising interest rates and slowing job growth will temper Canadian home sales this year and into 2014, while a new supply of condos coming onto the market over the next two years will depress prices in that segment, Scotiabank (TSX:T.BNS, Stock Forum) says.
“Canadian housing activity remains buoyant, though the underlying fundamentals for continued gains are becoming less favourable,” according to the bank’s Global Real Estate Trends report, published Wednesday.
It estimates that Canada’s average inflation-adjusted home price was up 2.5 per cent in the April-June period, compared with the second quarter of 2012 – about the middle of a 23-country ranking published by Scotiabank on Wednesday.
“Low borrowing costs and balanced market conditions continue to attract buyers, though slowing job growth and the recent uptick in fixed mortgage rates will likely cool activity later in the year and into 2014. Affordability also is challenged in some of Canada’s largest urban centres, primarily for single-family homes.”
Housing construction will slow as a result, with starts expected to fall to about 170,000 units next year, Scotiabank says in its Global Real Estate Trends report.
The Scotiabank report, which is consistent with other industry data, also raises concerns about an oversupply of condominiums in major Canadian cities as demand for new units weakens.
For example, in Toronto, purchases of new units have fallen sharply over the past year, as expectations of lower returns have made condos less attractive investments.
However, the report notes that condo resales – a market that is dominated by buyers who want to live in the unit they’re purchasing – have been holding up in Toronto.
Despite the slowdown in construction, Scotiabank says a record number of new condo units will come onto the Toronto market over the next two years. The supply is expected to exceed demand and to reduce condo prices
The report notes that imbalances are also beginning to appear in the Montreal and Vancouver condo markets, and builders are responding by slowing down the pace of new construction of multiple-dwelling units.
New apartment starts were down 30 per cent in Montreal and 10 per cent in Vancouver this year, the report says.
Canada’s increase in the second quarter lagged the United States, which is recovering from a much deeper and longer downturn that began in 2007.
Scotiabank says U.S. home prices increased by about eight per cent in the second quarter, after adjusting for inflation.
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Real Estate Cheat Sheet: rents go up; glass falls down
The top stories in Toronto real estate this week: the market for rental condos heats up, the Four Seasons joins the ranks ofglass-shedding towers, and economists predict the end of discount mortgages.
• More Torontonians are renting condos
A record 5,315 condo leases were signed last quarter, which pushed the average rent on a condo up to $1,847, even as the average size of a rental unit shrank to 785 square feet. Experts believe tighter mortgage regulations are keeping would-be buyers in the rental market, while concerns about oversupply have current condo owners renting out their units rather than trying to sell them. The good news for tenants: the glut of new-builds in the next two years should eventually put a damper on climbing rents. [Globe and Mail]
• Glass falls from the 53rd floor of the new Four Seasons Hotel and Residences
The latest shards from the heavens hit two “high-end vehicles” and temporarily closed Yorkville Avenue.[National Post]
• Pundits pronounce the end of rock-bottom mortgage rates
Royal Bank of Canada and the Bank of Montreal raised their five-year fixed-rate mortgages to 3.89 per cent and 3.79 per cent, respectively, which has many economists predicting an end to the era of ultra-low rates. A raft of mortgage defaults is unlikely, but consumer spending could fall significantly as households use a bigger portion of their income to finance their homes. [Toronto Star]