Toronto Real Estate Blog

Toronto condo market is secure

Derek Raymaker – Globe and Mail

Predicting the future of the high-rise residential market can be risky.

Take the forecasts for 2002, for example. In the wake of the 9/11 terrorist attacks, a temporary economic slowdown in the United States and a three-year condos-for-sale/propertysearch.htm” title=”condos in downtown toronto”>condo-building binge in downtown Toronto, a lot of economists and analysts predicted that the high-rise market was heading toward a glut of supply, and possibly shrinking prices.

So what happened? Total sales of new condos in Toronto rose 44%, to more than 15,000.

Last year provides another example. Nearly identical figures for new condo sales in 2005 and 2006 – 17,693 and 17,617, respectively – prompted even some of the industry’s boosters to predict that while there would still be a strong market in 2007, the earlier pace probably could not be sustained.

What happened? New condo sales in Toronto skyrocketed to 22,059 – and that’s only up to November, December data not having been released yet. Many of these sales came in the fourth-quarter as buyers tried to close deals before the Jan. 1 introduction of Toronto’s controversial land transfer tax.

Few market watchers have been willing to predict a downturn in demand for condos in Toronto” title=”toronto condos for sale”>condominiums, a demand felt not just in downtown Toronto, but increasingly in North York, Mississauga, Markham, and, recently, Brampton.

As long as prices for detached and other low-rise housing remain largely in the $400,000 to $600,000 range – even for the most modest of dwellings – the relative affordability and wide variety of locations in Toronto’s condominium market will keep demand high.

This past year saw the introduction of innovative design elements and a greater emphasis on sustainable building features aimed at lessening the impact of housing on the environment. In both cases, buyers responded well, especially to buildings that pushed the design envelope with features such as soothing terracing and angular architecture.

“In the last 12 months, there has been a much greater emphasis on design than we’ve seen previously,” said Jane Renwick, executive vice-president and editor of Urbanation, a publication that tracks high-rise development.

Among the more bold high-rises launched last year – ones that set the bar higher for future such projects – were Bazis International’s One Bloor at Bloor and Yonge streets, and Pier 27, a project by Cityzen Group and Fernbrook Homes at the foot of Yonge.

“This year’s buying furor for some projects was largely driven by design,” Ms. Renwick added. “Builders are finally realizing that good design has some pull with buyers, but it also contributes a lot to the aesthetics of the city.”

For many years, one of the main criticisms aimed at some condo projects – especially those located outside of the subway corridors – was that they were largely isolated from other community amenities.

But now, there is a move afoot to bring more commercial, retail and community uses into the mix at projects, according to Barry Lyon of N. Barry Lyon Consultants, which advises condo developers across the country. “Well-educated, younger residents are bringing with them a lot of the complementary components that are needed for healthy communities,” he said.

In Toronto, it seems that big-box retailers such as Home Depot and Wal-Mart are keen to establish more of a presence in the city’s centre, especially along Eastern Avenue.

In the coming year, potential buyers could see three or four levels of residential condominiums built on top of central big-box stores. The concept has already been executed successfully in downtown Vancouver.

Ms. Renwick points to Lanterra Developments’ Maple Leaf Square, adjacent to the Air Canada Centre at the foot of Bay Street, as an example of how a condominium and commercial amenities can be combined successfully on a large scale prior to construction. Its two towers are nearly sold out.

Other trends to watch for in 2008, Mr. Lyon said, include a surge of building activity in the eastern part of downtown, and Waterfront Toronto’s West Donlands community taking shape, bolstered by the introduction of the Cherry Street streetcar line. “The waterfront is becoming real. All these years of planning will finally bear fruit.”

As long as prices remain low, relatively speaking, demand for condominiums will continue to be steady.

But Mr. Lyon noted that land and construction costs in downtown and midtown Toronto have been spiralling higher, to the point where developers feel they can charge more. It’s this spiral effect that can ultimately destroy the one thing – affordability – that sustains the market.

Another element that will likely have a greater impact on the Toronto condo market this year is the re-emergence of the investor-buyer, who rents out purchased suites for income. In the late 1980s, these buyers played a big role in creating the real estate bubble by flipping their suites. Since then, they’ve consistently made up 20% of the market.

This year, Ms. Renwick predicts investors will increase to 30% of the market, but they will concentrate on buying suites in downtown locations and along subway lines.

Mr. Lyon added that investors have shown a reluctance to flip their properties, holding on to them for an average of three to five years before reselling.

“Flipping is the last thing we want to see,” he said.

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Housing purchases jump 21% in what is usually a slow fourth quarter, but slowdown expected after tax takes effect in February

Lori Mcleod – Globe and Mail

Buyers racing to beat Toronto’s incoming land transfer tax created an uncharacteristic spike in home sales over the holiday season, but a slowdown is on the horizon after the tax comes into effect.

“The fourth quarter of any calendar year tends to be very slow for the real estate market, but this was anything but slow,” said Phil Soper, president and chief executive of RLP. “It is painfully obvious that the new tax that’s being imposed on people in Toronto’s 416 area drove activity.”

As of Feb. 1, condos-for-sale/buyers.htm” title=”buy toronto home or condo”>Toronto home buyers will pay a new fee to the city in addition to the existing provincial land transfer tax. It will nearly double the tax bill for home buyers, raising the tab on a $375,000 home to $7,575 from $4,100.

“The rate of activity in areas where the tax will not impact people was much lower than in neighbouring areas where the tax comes into effect,” Mr. Soper said.

Housing unit sales were up approximately 21% in the GTA in the fourth quarter, compared with 7% in surrounding areas, according to data from the Toronto Real Estate Board.

The strong fourth quarter helped the condos-for-sale/propertysearch.htm” title=”toronto real estate”>Toronto real estate market shatter previous sales records in 2007, according to data released by RLP. The average price of a two-storey detached home in the city hit $506,900, up 8% from last year. The price of a detached bungalow rose 8.9% to $413,375, and that of a condo unit rose 10.4% to $280,505.

Two years ago a two-storey home in the city averaged $461,282, while a bungalow went for $362,611 and a condo unit $242,202.

After the current wave of buyers subsides, both price gains and sales should start to decline, Mr. Soper said.

“We do expect real estate activity in Toronto this year to fall by about 4 to 5% versus 2007,” he said. “We don’t expect to see a year like 2007 in terms of raw activity for a few years to come.”

Things could start to cool down in popular areas such as Riverdale and the Beaches, Mr. Soper said. Markets that could be poised for better-than-average price gains this year include Parkdale and Corktown neighbourhoods along with Don Mills, which could get a boost after the ongoing renovation of the Don Mills shopping centre is completed.

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Contact the Jeffrey Team for more information – 416-388-1960

By Lori Mcleod Globe and Mail

Canadian real estate prices blasted through what is usually a holiday slowdown period at warp speed, but the big gains are unlikely to continue this year, according at a recent real estate report.

While home sale prices typically moderate in the fourth quarter, last year the average price of a detached bungalow increased by 11.6% to $337,555 from $302,497 the year before. The price of an average two-storey property rose 11.3% to $399,738, and a condo unit 11.7% to $240,395.

“The fourth quarter [of] 2007 was surprisingly strong, with unseasonably high price increases and unwavering demand,” said Phil Soper, president and chief executive officer of RLP, in a statement.

“As we move into the new year, activity levels are expected to wane from the frantic pace that many regions of the country experienced in 2007.”

While home sale prices typically moderate in the fourth quarter, last year the average price of a detached bungalow increased by 11.6% to $337,555 from $302,497 the year before.

Average prices are still expected to rise, but at a much more moderate pace, Mr. Soper added.

Much of the fourth quarter’s strength was due to natural resources, which drove growth in markets such as Regina and Saskatoon, the report said. The market with the biggest year-over-year home price gain in the quarter was Saskatoon, where the price of a bungalow rose by 55.2% to $292,500 and a two-storey home by 56.7% to $321,250. The highest priced homes in the country were in Vancouver, where the average two-storey house would set you back $895,000, compared with $803,500 the year before.

The only market to experience a price decline was the condo market in Fredericton, where the price of a unit fell by $500 to $126,000. Price growth was also notably slower in Calgary, where double digit gains appear to be a thing of the past. The price of a detached bungalow in Calgary rose 5.2% to $429,889, compared with $408,833 in 2006.

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Contact the Jeffrey Team for more information – 416-388-1960

Housing starts reach their second highest level in nearly two decades despite cooling in December

Housing starts in 2007 are estimated at 229,600, surpassing 2006 starts, and reaching their second highest level in nearly two decades. However, the seasonally adjusted annual rate of housing starts in December decreased to 187,500 units from November’s 233,300 units, according to Canada Mortgage and Housing Corporation (CMHC).

“Growth in 2007 housing starts was driven by low mortgage rates, solid employment, income growth and a high level of consumer confidence, said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “Even with the weakness in residential construction in December, new home starts are estimated at 229,600 units in 2007, surpassing 2006 levels.”

After two strong months in October and November, the volatile multiples segment and single-detached starts fell in December mainly due to harsh winter weather. Also, the seasonally adjusted annual rate of urban starts decreased 23.2% to 151,600 units in December, compared to November. Urban singles were down 12.6% to 85,600 units in December, while multiple starts decreased 33.7% to 66,000 units.

In December, the seasonally adjusted annual rate of urban starts increased in two of Canada’s five regions. Urban starts registered an increase of 3.4% in Quebec and 1.2% in the Atlantic region. British Columbia, Ontario and the Prairies all recorded a decline in activity for December (-36.7%, -33.1%, and -17.1% respectively). Urban single starts were down in all regions except the Atlantic and British Columbia, while only Quebec saw an increase in urban multiple starts.

Rural starts were estimated at a seasonally adjusted annual rate of 35,900 units in December.

For the year 2007, actual starts, in rural and urban areas combined, increased by an estimated 1.0% compared to 2006. In urban areas, actual total starts in 2007 decreased by an estimated 0.6%. Actual urban single starts for 2007 were down 3.5% compared to 2006, while multiple starts grew an estimated 2.1% in 2007 compared to 2006.

Housing starts are expected to remain strong in 2008, but are forecast to decrease to 214,300 units.

As Canada’s national housing agency, CMHC draws on over 60 years of experience to help Canadians access a variety of quality, environmentally sustainable, and affordable homes – homes that will continue to create vibrant and healthy communities and cities across the country.

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Contact the Jeffrey Team for more information – 416-388-1960

Economist sees ‘more significant downturn’ in the cards, but industry players remain optimistic

By Lori Mcleod and Roma Luciw – Globe and Mail

Housing starts froze up at the end of last year, leading a prominent Bay Street economist to warn of a sharper-than-expected downturn in the Canadian real estate market, but others said one month’s data provide a poor indicator of what’s in store for 2008.

Ted Carmichael raised concerns that the bustling real estate market has reached a turning point after data indicated that in the final, wintry month of 2007, starts dropped to their lowest level in more than five years.

“The sharp decline in December housing starts suggests that a more significant downturn in real estate activity may be in the cards for 2008,” said Mr. Carmichael, chief economist at J.P. Morgan Securities Canada Inc.

His previous view, released in October, had been that the current housing starts cycle likely peaked in the third quarter of last year, but the anticipated downturn in real estate activity in 2008 would be “modest.”

Despite the weak month, starts for all of last year came in at their highest level since 2004. Whether they are weak or strong, housing starts are not as accurate a measure of the future health of the residential real estate market as sales are, said George Carras, president of industry research firm RealNet Canada Inc.

“There’s a very big difference between a sale and a start, with sales being the leading indicator of economic activity. Before a start, you must have a sale,” Mr. Carras said.

Monthly housing start numbers are also becoming much more volatile because of the larger number of multiresidential developments being built, Mr. Carras said.

Housing starts are registered by Canada Mortgage and Housing Corp. (CMHC) after a project has been partly developed and most of the units are sold.

In Vancouver, 2007 has marked the fourth year of strong activity since the “dumps” the market was in previously, said Peter Simpson, chief executive officer of the Greater Vancouver Home Builders Association.

Despite strong sales and prices, starts have been slowed somewhat by the city’s competitive labour market, he said. “There are only so many workers to build these homes from single-family to concrete towers. So it has in some respects slowed the starts.”

The seasonally adjusted annual rate of new-home starts slowed to 187,500 units in December from 233,300 units in November, CMHC said in a news release yesterday. Economists had forecast 222,000 starts.

The December housing starts numbers, however, did close out another banner year for home construction. For the year, starts totalled 229,600 units, up 1% from the 2006 tally, CMHC said. The federal agency forecast that starts will decrease to 214,300 units in 2008.

“Growth in 2007 housing starts was driven by low mortgage rates, solid employment, income growth and a high level of consumer confidence,” Bob Dugan, the agency’s chief economist, said in the release.

Canadian real estate starts defied repeated predictions of a slowdown last year, even as the U.S. housing market went through a dismal and protracted slump that is slowing that country’s economic expansion. The continuing collapse of the U.S. subprime mortgage market is weighing on growth prospects this year.

Economists believe that Canada’s real estate market will not follow the U.S. market and fall into a deep slump.

“With weather exerting a negative influence on building activity in December, the sharp drop in housing starts shouldn’t be seen as the prelude to a U.S.-style meltdown in the coming year,” said Robert Hogue, senior economist at BMO Nesbitt Burns Inc.

Nonetheless, he expects the strong momentum of the past several years will “slow moderately as rising economic uncertainty throws some sand in the housing engine.”

CMHC said yesterday that the “harsh winter weather” was responsible for the slower building activity in December.

Work on urban single-family homes in cities fell 12.6% to a seasonally adjusted annual rate of 85,600 units last month while starts for apartments and condominiums, which tend to be volatile, tumbled 33.7% to 66,000 units.

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Contact the Jeffrey Team for more information – 416-388-1960