Surge in Canadian condo starts adds fuel to bubble talk
The seasonally adjusted annual rate of housing starts was 197,900 units last month, down from 199,900 units in December, the government agency said
Allison Lampert, The Gazette
Fuelled by a 57% rise in new home construction in Quebec, national starts made an unexpected leap last month, reviving the spectre of a bubble in certain hot condo markets, according to data published Tuesday by the Canada Mortgage and Housing Corp.
Comment: Again, averages and national numbers do not reflect local realities. A jump in Quebec construction has nothing to do with condos in Toronto.
While some analysts had predicted housing starts would weaken after a particularly strong March, April numbers rose to 244,900, compared with expectations of 204,000. That was the strongest level of new home construction since 2007. Many analysts had expected some softening after home building was boosted by warm weather across much of Canada during March.
Comment: Wow… yet again the analysts and experts were wrong. That has got to be 122 straight months now.
“This report reflects unbelievable strength in Canadian housing starts, and all of the gain was in multiples again, which reflect the ongoing Canadian condo craze,” said Scotia Capital economist Derek Holt. “The multiples number was the second strongest monthly reading on record and was only slightly behind September 2007.”
Comment: Exactly. This is not new. The record was set almost 5 years ago, with the trend continuing thereafter. And it went right through the issues of 2008. That proves the strength of the market and the solid foundation upon which it is built. During that time we saw the mortgage market tightened up THREE times by the finance minister. And still it kept on keeping on. All of those investors condos bought to rent out – and Toronto’s vacancy rate is still around 1.3%. Prices are now slowing, finally. Resale condos rose only 4% last month, down from highs of double that. New condos even dropped 1% on a per-square-foot basis in the 1st quarter. So argue against me and the facts, explain to me where the bubble lies.
Nationally, however, new home construction rose almost 23%, year to date, compared with the same four months in 2011, driven largely by increased building in Ontario and the Prairies, Laberge said.
In April, Ontario’s housing starts increased by 12.2%, while new home construction rose by 11,000 in Toronto alone, raising renewed fears of overheated condo sales in Canada’s largest real estate market.
Comment: And starts dropped more than expected in February and everyone panicked and said the condo market was dead. Could it be that starts are up because the weather is better than normal and has allowed for more construction sooner in the year?
“There’s little question now that Canada’s residential construction sector is heated,” said Robert Kavcic of BMO Capital Markets.
Scotia Bank’s Holt, who warned of a speculator-driven “ghost city” phenomenon in Toronto Tuesday morning, softened his position later in the day.
Comment: Oh yes, all of these condos that dem darn forrenners is buyin’, yup, buyin’ dem all up and den not livin’ in ‘em or rentin’ ‘em out. Juss leavin’ dem all empty. Because it makes so much sense to buy condos and then leave them empty..
“We took an overly strong interpretation of CMHC figures,” he said, in reference to data showing that 22% of Toronto area condos are being rented out by owner-investors.
Comment: So 22% are rented out and 5% are foreign bought. That does not scare me at all.
The CMHC doesn’t actually track data for speculators, who buy condos and flip them for a profit.
Comment: No, but generally 20% of a condo sells within a year of registration. And of that 20%, some are investors. Others lost their job, got married or had a baby. Some were transferred, others walked in on their PDI day and realized how small it was. Or hated the view. Remember, these people all bought 3-5 years earlier – life can change a LOT in that time.
Shaun Hildebrand, senior analyst for the CMHC in Toronto, said that out of the more than 17,000 condo units completed in the Greater Toronto Area during the last fiscal year, 841 units – or less than 5% – were left unsold by developers.
Comment: And they all sell, eventually.
That number, he said, is cumulative, and would include condos built by developers in previous years. Arguing that housing growth is supported by fundamentals, including net immigration in Ontario, Laberge denied evidence of a Canadian condo bubble.
“There is no clear evidence, there is no clear proof of overheating or problematic conditions in the market.”
Comment: Thank dog we are finally starting to hear from sane and rational people. People who actually work in the industry and are not just self-appointed “experts” who are too far removed.
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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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