Excerpt from an article by Tony Wong – Toronto

A correction in the red-hot Toronto condominium market “cannot be far away,” says a leading housing economist.

Buying for investment purposes in the Toronto condo market has been “far in excess of market needs” and buyers face “very high risks,” said economist Will Dunning in his most strongly worded analysis yet of the Toronto market, released yesterday.

Nearly a decade into a robust housing cycle, high-rise condo sales remain extremely strong, with second quarter sales at an annual rate of 20,800, a record high, said Dunning.

While other housing economists have expressed concern over what they see as a potentially frothy Toronto condo market, Dunning, a former Canada Mortgage and Housing Corp. economist, has been among the most conservative.

Price appreciation for condos continues at a good clip – 5.9% year over year – and the average condo rent has increased 2.1%.

“An onslaught of Toronto condo completions is just beginning and I expect that rents will start to fall late in the year with the possibility of price weakness to follow,” said Dunning.

Toronto condo buyers have lucked out so far only because the construction industry is at capacity, said the economist.

Some analysts have said the market is sustainable because prices haven’t gone up as far or as fast as in the 1980s, just before the market crashed.

They also say banks are much more stringent and developers have to sell most of their units before construction. Also, high house prices mean Toronto condos are now the only choice for some buyers.

He forecasts 15,910 condo starts this year, with another 16,623 for 2007 and more than 10,000 in subsequent years, meaning buyers will have a lot more Toronto condos to choose from.

He has revised his home price forecast upward for 2006, and expects the average home to increase by 5.7% this year (compared with a previous forecast of 4.3%) to $355,305. He expects resale prices to move 3.4% higher in 2007 and then level off at about the inflation rate in 2008 and 2009.

With the deterioration of affordability due to higher house prices and rising interest rates, Dunning estimates that sales of existing homes (both condos and low rise) should be 10% lower than current levels.

Read the full article

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dissecting the condo bubble playing toronto

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