Upbeat condo market last hurrah ? Most probably not.

Economist says housing prices at risk to fall

The latest market forecast from Scotiabank warns of ‘downside risk’ to real estate prices.
Canadian housing prices are at risk of falling over the next few years, driven by global economic weakness and softness in key condo markets, a Scotiabank economist said Friday.

Yeah, right.

NO. not even close.

It’s no last hurrah. It’s actually … the Eternity.

Seriously, it sounds like condo is here to stay for good.

Why ?

Guess our government is okay with the idea for families of four (with young kids) or more squeezed into a tiny little shoebox measuring no more than 700 square feet, something your parents call Bachelor Apartment, which they now proudly present as CONDOMINIUM – Canada’s way of life.

This is provided you’re lucky enough the 700 Square Feet Standard will remain as the de facto size for condo in places like Toronto. Mind you, they already began to build pigeon holes as small as 297 square feet – Canada’s Smallest Condos Going On Sale In Surrey.

So, what makes you think they won’t create something like this “Hongkong style condominium” here in the near future ?

And if condo is the only thing left for families (with young kids and at least two decent incomes), what makes you think there is no demand for condo anytime soon ?

Well, you could be right to say demand for condo is diminishing because families can no longer afford even a shoebox but hey, that doesn’t mean no one is buying … they’re always speculators who enjoy the role as landlord … The same poor souls who can’t afford a roof over their heads have to live somewhere, right ?

This may look ugly, but it’s the prevailing reality … So, last hurrah ? Most probably not.

Ted Torrence
Housing Analyst

Will the condo market enjoy one last hurrah?

Brady Yauch, BNN.ca

Toronto home sales fall in May, but prices rise

Sales of existing houses in the Greater Toronto Area were 3.4-percent lower in May than they were a year earlier, while prices continued to rise.
Talk of a cooling in Canada’s housing market, particularly its condominium sector, may have been premature.

The total value of building permits taken out by developers in April jumped 10.5 percent from the previous month to nearly $7 billion. But it was the condominium, or multi-residential, category that offered the biggest surprise, with the value of building permits in that sector surging more than 51 percent from March.

Compared to the previous year, the value of building permits for condos and other multi-unit buildings is up more than 40 percent.

Ontario and British Columbia – two provinces home to large urban centres which have attracted the most attention about the possibility of a housing bubble – saw dramatic increases in residential building permits, up 30.8 percent and 45.5 percent, respectively. And compared to a year earlier, the value of residential building permits in those two provinces increased 20 percent and 39 percent, respectively.

“Note that this series tends to be choppy, although today’s data release suggests that despite softening condo-building activity, construction there could be set for one last hurrah,” CIBC economist Emanuella Enenajor says in a note to clients. “Overall, today’s number suggests that despite a slowing trend in homebuilding, condominium construction still has some steam left.”

Overall, April marked the fourth consecutive month of an increase in the value of building permits, after that figure peaked in the middle of last year.

But it is the dramatic increase the condo sector activity that might cause concern among a number of policymakers.

Finance Minister Jim Flaherty has in recent years targeted the condominium sector in particular in his concerns about a potential housing bubble in Canada.

Last year, after Flaherty introduced tougher rules for new mortgages, he singled out the condominium as one of the main reasons for making such a move. In recent weeks Flaherty has been optimistic that these new rules, among others, have helped cool condo markets in major cities such as Toronto and Vancouver.

“I’m pleased in particular that the condo market in big cities has fallen back. I’m also pleased with some other moderation in new house construction and in demand for mortgages. I think these are healthy developments because I think we were beginning to see some indications of the beginning of a bubble,” he remarked last month.

Recently-departed Bank of Canada Governor Mark Carney had also expressed concern about the condominium market and high personal debt levels among Canadian households. Last year he said the number of condos under construction in Toronto in particular were “above historical highs.”

And more recently TD economists said in their regional forecast for Canada’s housing market that cities such as Vancouver, Toronto, and Montréal which saw a boom in condo construction were likely to underperform other real estate markets in the country.

TD expects that the recent boom in homebuilding will help shift “bargaining power” back to buyers and subsequently help to push down prices. While this pullback in prices will be most noticeable in the condo market, there will “likely be some knock-on effects to the single-family home market,” the economists wrote.

Surprise spike in building permits signals condo building ‘set for one last hurrah’

Greg Quinn, Bloomberg News

Vancouver made one of the largest contributions to the national increase among 34 cities, Statistics Canada said, with permits rising 50.7% to $645 million led by multi-family dwellings.

Despite a slowing trend in homebuilding, condominium construction still has some steam left

Canadian building permits unexpectedly rose in April led by multiple-unit housing in Vancouver, a market that officials have said shows signs of overbuilding fuelled by record consumer debt.

Condo market still too hot for Bank of Canada’s comfort

Despite drop in home building, the bank sees worrying signs of overbuilding, particularly of condos in big cities. Read more
The value of municipal permits rose 10.5% to $6.96 billion, following a revised 6% rise in March, Statistics Canada said Wednesday in Ottawa. The gain was the fourth in a row, the longest streak of increases in a decade. Economists forecast a 3% decline in April, according to the median of 11 responses to a Bloomberg survey.

Emanuella Enenajor, an economist at CIBC World Markets, noted that Statistics Canada revised the initial March numbers downward Wednesday, but said the second quarter appears to be shaping up to be stronger than the first quarter.

“Note that this series tends to be choppy, although today’s data release suggests that despite softening condo-building activity, construction there could be set for one last hurrah,” Enenajor said in a research note.

“Overall, today’s number suggests that despite a slowing trend in homebuilding, condominium construction still has some steam left. That could support Q2 residential activity somewhat, after the sector’s drag to Q1 GDP.”

Surging home construction has helped drive household debts to a record 165% of disposable income, a ratio the central bank says should stabilize as housing investment wanes. Bank of Canada Deputy Governor Timothy Lane said June 4 in Seoul there are signs of a “constructive evolution” in household finances after “imbalances” built up.

Residential permits rose 21% to $4.35 billion in April, Statistics Canada said Wednesday. Permits for housing projects such as apartments and condominiums jumped 51.9% to $2.15 billion, and single-family permits rose 1.1% to $2.21 billion.

Vancouver made one of the largest contributions to the national increase among 34 cities, Statistics Canada said, with permits rising 50.7% to $645 million led by multi-family dwellings. Calgary permits also rose 40.6% to $773 million on commercial buildings.

Condo Overbuilding

Finance Minister Jim Flaherty tightened mortgage rules for a fourth time last year on concern that there has been an overbuilding of condos in cities such as Toronto and Vancouver.

Permits for non-residential construction fell 3.6% to $2.60 billion in April from March, as declines for industrial and institutional projects exceeded a gain in the commercial group.

The value of permits was 5.4% higher in April than the same month a year earlier, with multiple-unit housing 40.4% higher on the year.

Demand for homes has been supported by some of the lowest mortgage rates in decades, with the Bank of Canada reporting the average for a five-year fixed rate loan was 5.14% last week. The central bank has kept its overnight interest rate at 1% since September 2010 to encourage borrowing and spending, and has said business investment and exports will help lead the economic expansion.

www.bloomberg.com

Upbeat new housing numbers could be ‘last hurrah’

New housing already purchased and in the pipeline continues to propel the Canadian real estate market but worries persist about what happens when that tap turns off.

Canadian housing starts rose at their fastest pace in more than a year in May on a surge in condominium construction, CMHC reports

For now, the industry got another bit of good news Monday with Canada Mortgage and Housing Corp. saying new home construction or starts reached the lofty 200,000 level in May on a seasonally adjusted annualized basis.

CMHC said urban multiple starts, mostly condominiums, made up 114,346 of the 200,178 May figure. May starts easily outpaced the April number of 175,922.

“Gains in the multiple starts segment partly offset the moderation in activity that was observed in previous months, especially in Atlantic Canada and Ontario. As a result, the trend in housing activity remains close to its historical average and is in line with estimates of household formation,” said Mathieu Laberge, deputy chief economist at CMHC.

While these numbers paint a good picture, most of the construction going on today is of previously sold units rather than a sign of fresh interest in the housing market, said Benjamin Reitzes, senior economist with Bank of Montreal.

“Before you put shovels in the ground for multiples, you need to sell a majority of the units,” he said. “Some are concerned if all these units hit that market at the same time you will get a flood of units and a lot of them being owned by investors who will bail out.”

Ben Rabidoux, analyst and strategist with U.S.-based Hanson Advisors, said we are seeing a last hurrah in the housing sector before a glut of homes hits the market.

“The condo market is very well supplied to begin with in the resale and new front. Even if they presale to 80%, they don’t sell to just end users, there are investors,” said Mr. Rabidoux. “The demand is not there from end users. It’s simple economics, it can’t continue.”

The jump in May housing numbers comes on top of news Friday from Statistics Canada that the economy added 43,000 construction jobs. StatsCan also reported that municipalities issued $7-billion in permits in April, up 10.5% from March.

FP0611_HousingStarts_C_JRMr. Reitzes allows that those numbers may not hold up but over the long term, but he says fears we are overbuilding may not be justified. Housing starts over a 25- 30-year period are about 180,000 annually which is close to what is demanded by Canadian household formation. And he says any decline in sales is coming gradually enough that there won’t be a crash.

But a slowdown almost seems like a certainty.

George Carras, president of RealNet Canada Inc., noted high-rise sales in the greater Toronto area are off 12% year to date from the 10-year average while low rise sales are down 45%.

He said the market is now in “uncharted territory” because there are 242 condo projects in the GTA under construction as of the end of April that translates into 63,237 units — an all-time record.

“About 70% of those units have been presold to people with binding agreements,” said Mr. Carras. What isn’t known is whether the bulk of those units will hit the market and add to record number of existing units already for sale in some cities.

The impact has been felt on rental rates in Toronto already but owners are still getting healthy rent increases. Year over year, rental growth was still 4.6% in the GTA in the first quarter but that was down from 6% between 2012 and 2011, said Mr. Carras.

Jim Murphy, chief executive of the Canadian Associated of Accredited Mortgage Professionals, said what happens next will depend on investors.

“Is the investor a speculator who will panic in a glut and drive prices down? Or are they someone who will take their investment and just be happy to collect rent?” said Mr. Murphy.

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