By Chris­tine Dobby and Garry Marr – Finan­cial Post

The con­do­minium sec­tor con­tin­ues to be the power behind the national hous­ing mar­ket which is now see­ing a steady decline in sin­gle fam­ily home con­struc­tion, accord­ing to new data from Canada Mort­gage and Hous­ing Corp.

Octo­ber sta­tis­tics reveal a tale of two mar­kets — a condo sec­tor where new con­struc­tion of urban mul­ti­ples was up 1.7% from a month ear­lier and a sin­gle fam­ily home pic­ture where starts dropped 9% from a month earlier.

Take a longer-term look and single-family home con­struc­tion is now at its low­est level in two years and off more than 29% since the end of 2009. Multiple-unit starts, which are mostly made up of con­do­minium con­struc­tion, have climbed 70% dur­ing the same period and the sec­tor is at its high­est level Octo­ber 2008.

Over­all, new home con­struc­tion was 207,600 in Octo­ber on a sea­son­ally adjusted annu­al­ized basis. That’s down from 208,800 in Sep­tem­ber but starts are in line with the 2002–2008 hous­ing boom when they checked in at more than 200,000 a year.

Robert Kav­cic, econ­o­mist with BMO Cap­i­tal Mar­kets, sounded some alarm bells for the con­do­minium mar­ket which he main­tains is see­ing unoc­cu­pied units — also clas­si­fied as unsold — at their high­est num­ber since 1992 which is the ear­li­est year data was available.

“On the sup­ply side, there’s a clear divide between sin­gles and con­dos, with the lat­ter look­ing more vul­ner­a­ble if a cor­rec­tion does come,” Mr. Kav­cic said in a note. “Suf­fice it to say that while starts are again run­ning slightly ahead of the esti­mated rate of house­hold for­ma­tion (about 175,000 a year), the sup­ply sit­u­a­tion is look­ing a lot tighter for sin­gle detached homes than for condos.”

Brian John­ston, the pres­i­dent of Monarch Con­struc­tion, said the con­do­minium mar­ket has been dri­ven by afford­abil­ity issues which includes the cost of land for sin­gle fam­ily homes.

“House prices have been going up faster than infla­tion for the past 10 years,” he says, not­ing peo­ple must travel fur­ther and fur­ther into the sub­urbs to buy homes that com­pare in price to urban con­do­mini­ums. “Peo­ple are say­ing it’s just not worth it. I’d rather sac­ri­fice to reduce my com­mute times.”

Mr. John­ston also said in Toronto, which is con­sid­ered the largest con­do­minium mar­ket in North Amer­ica, the provin­cial gov­ern­ment has made it pol­icy to have more inten­si­fi­ca­tion and dis­cour­aged low rise construction.

Despite the pace of con­struc­tion, he doesn’t see con­do­minium sales slow­ing any­time soon with one caveat. “I don’t see any increase in unsold con­do­mini­ums. We are at like 98% sold by the time we get to occu­pancy,” Mr. John­ston says . “The only issue in my mind is the day inter­est rates start to go up, then we may have a prob­lem. If that hap­pens, the eco­nom­ics start to fall apart.”

Urba­na­tion Inc., which tracks the Toronto con­do­minium mar­ket, said the num­ber of unoc­cu­pied units may be up but cau­tioned against com­par­isons with 1992 because the over­all mar­ket is so much larger.

“There are 29 build­ings in the cat­e­gory of occu­py­ing now, there are 5,627 units and 5,194 have been sold or 92%,” says Ben Myers, vice-president of Urba­na­tion. “I mean how many projects were there in 1992? You have to expect the num­bers to be skewed.”

While urban sin­gle new home con­struc­tion may have seen bet­ter days, a strong mar­ket for exist­ing homes could ulti­mately lead to a rebound.

In Toronto, sin­gle fam­ily detached sales have been ris­ing since May com­pared to a year ear­lier, said Gre­gory Klump, chief econ­o­mist with the Cana­dian Real Estate Asso­ci­a­tion “You have to have a tight mar­ket in the resale mar­ket before new home con­struc­tion picks up,” he said. “You have to have a short­age of sup­ply and then they start building.”

Kirsten Cor­nel­son, an econ­o­mist with Royal Bank of Canada, said the volatil­ity of the multiple-unit sec­tor leads her to put more faith in urban sin­gles for an over­all under­stand­ing of the market.

That said, she doesn’t seem wor­ried about the mar­ket. “We think mul­ti­ples will fall back to a more nor­mal pace,” said Ms. Cor­nel­son. “We don’t see any rea­son to be alarmed. We think the Cana­dian hous­ing mar­ket is in for a pretty steady period. The strength over the last cou­ple of months is not sus­tain­able but we don’t expect any sort of collapse.”

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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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