Intensifying urbanization driving Toronto’s condo boom
Carolyn Ireland – Globe and Mail
I wrote recently about the plight of U.S. homeowners who are suffering from the slide in house prices even if they diligently paid off their mortgages and didn’t over-extend themselves in the first place.
A reader shared another anecdote: He’s just back from Little Rock, Ark., and says the real estate market there would be a revelation to many people on this side of the border.
He points to an 1887 mansion for sale in Little Rock with 10 bedrooms, three bathrooms and a turret. It has 7,800 square feet of living space and is listed on the National Register of heritage properties. In 1900, it belonged to the attorney general of Arkansas. Now it’s been sitting on the market long enough that the price has been cut to $419,000 (U.S.) from $525,000.
“Canadians have no idea what’s happened in America,” says the reader.
Opinions vary widely about how likely it is that the same problems will migrate to Canadian cities.
Comment: Sure, people throw crazy ideas around – but there are some who believe the world will end in December… it does not make any of them more credible. We are so different from the US in so many ways that it is not even like comparing apples and oranges, it is more like apples and elephants.
In Toronto and Vancouver especially, home buyers have loaded up on debt as real estate prices climb and interest rates remain low. And while the latest numbers from the Canadian real estate association show a pullback in Vancouver, Toronto continues to climb unchecked.
Earlier this week, Bank of Canada Governor Mark Carney suggested that higher interest rates “may become appropriate.” The central bank left its key rate unchanged at Tuesday’s meeting, but even the fact that Mr. Carney broached the subject is taken as an omen by market watchers. Mr. Carney has signaled many times that he’s uneasy with the debt burden of Canadians.
Comment: And people heard the warning, they are paying down debt and avoiding big purchases. We are doing what we need to do to be safe. We are a smart bunch, us Canadians
And sure our banks are more prudent and financial regulations more stringent than those in the United States before the crash there, but Canadians are now about as indebted as Americans were at the peak of their bubble.
Comment: But we have higher employment, no sub prime mortgages and a willingness to cut down on debt. One measure is the same, only one. Do not read too much into it.
At Toronto-Dominion Bank, chief Canada macro strategist David Tulk notes that the sub-prime market was small in Canada before rules were tightened, that mortgage insurance is a pillar of the housing market in this country and that Canadians in general have preferred very conservative mortgages.
Still, he believes the durability of the housing market and the efficacy of its regulatory institutions will be tested as interest rates normalize over the next couple of years.
Comment: Normalize? What does that even mean? Go up 2%? That is not going to do much of anything… we were 2% higher a few years back and 3% higher in 2007 when the last sales record was set.
At CIBC World Markets, analysts Alex Avery and Brad Sturges point out that Toronto’s condo market is often held out as the very pinnacle of excess in Canadian real estate.
But the analysts believe the people behind those high-profile concerns (bank executives, international magazines) are focusing on the pace of growth instead of the drivers of growth.
They note that Canada’s population is already concentrated in cities and the pace of urbanization is accelerating. Higher energy prices are pushing up transportation costs, economic development is continuing and a Greenbelt around the area is pushing development inwards.
Comment: Might that be a major driver of demand for condos, for downtown living? Methinks so…
The vast majority of Toronto’s 132 or so high-rise towers under construction are condominium buildings within a 1.6-kilometre radius of Union Station.
At the same time, they note that single-family home development has been declining consistently since 2002, falling steadily to just 51% of 2002 levels by 2011. Bidding wars for houses in popular neighbourhoods are the norm in the entry and middle segments of the market. “We expect Toronto’s urbanization trend to continue, and expect property price performance to outperform less urban centres in Canada, with even greater price performance in the city’s core,” say the analysts in a report.
Tell us what you think: Is Toronto’s real estate market at risk from the amount of construction going on downtown? Or do demographic trends support the need for all of those buildings?
Contact the Jeffrey Team for more information – 416−388−1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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