Ben Rabidoux – The Globe and Mail

The Toronto condo market has been the centre of much discussion recently, with even the Bank of Canada giving it significant coverage in the December 2012 edition of the Financial Stability Review.

The potential risks facing this market segment have now crept to the forefront in discussions on the health of the overall Toronto real estate market – and for good reason. As the Bank of Canada noted, “Price corrections in particular segments of the housing market may put downward pressure on house prices more generally.” Because of this, the health of the condo market ought to be of interest to everyone in Toronto.

And on that front, it appears that 2013 may prove to be a pivotal year for the condo market as a number of factors seem to be lining up against it.

In particular, I see five trends worth watching in 2013:

1) Sales of new and existing condos are weakening

Sales of existing condo units, as measured on the Multiple Listing Service, have fallen in both the 905 and 416 regions. January sales in the 416 declined 6% from a year earlier and 9% in the 905 over that same time period.

Comment: Uh, nope. Condos in the 416 fell 4.5% and 6.4% in the 905.

The story is even worse in the new condo market, where sales of new units fell 53% in December compared to last year.

Comment: So what, pick any one month and you can make a point. The fact is, 2012 had the 4th highest new condo sales ever. One month does not a trend make.

Falling sales have been accompanied by rising inventory through the second half of 2012. Rising supply and falling demand are destabilizing factors in a real estate market.

Comment: New condos were 79% sold in 2012, just above the 10-year average of 78%. So no, unsold inventory is NOT rising, it actually dropped a little bit.

2) Inventory of unsold condos is now rising rapidly

January saw a significant rise in the MLS condo inventory across the Greater Toronto Area (GTA) over the same month last year, with condos for sale rising 28% in the 416 – including a 42% jump in the downtown core – and 49% in the 905. Weakening sales and rising inventory is a clear indication that supply and demand is increasingly out of balance.

Comment: I cannot find stats that detailed, curious where these come from. But I find it very hard to believe when overall new listings FELL 18.5% in February from Feb 2012. And new condo inventory is also down…

3) There is an unprecedented supply of new condos in the pipeline, with a record number of units set to complete in 2013

Given the number of cranes that fill the Toronto skyline, it will likely come as no shock to Toronto residents that the number of condo units under construction is at an all-time high at just under 55,000 units.

Comment: Yet almost 80% of those units are already sold. Same as every year for the past 10 years. It is not like they are all going to suddenly come onto the market. And there are actually a little less than 61,000 units currently under construction.

Of these, an estimated 25,000 to 28,000 units are set to complete in 2013, representing an enormous amount of potential new inventory. If current trends persist, these units will be completing, and a portion of them hitting the market, at a time when existing inventory is already high and sales are relatively weak.

Comment: And we have had that many completed in a year before – nothing happened. So what? Potential is only that, potential. Sales are weak, yes, but only compared to record years. We are still way above the long term average.

4) Population growth is slowing

What’s ultimately needed to deal with what appears to be a potential condo oversupply problem is strong population growth in the GTA.

While we often hear that the GTA attracts some 100,000 new individuals annually, it appears that population growth is slowing. In fact, if we look at net population change in Ontario, we find that our population as a province is growing at the slowest pace since 2007.

Comment: Provincial data does not matter when talking about only one city. But if population growth slows in Toronto, then there will be fewer homes required. As sales slow, developers will release fewer projects. This will be slow and gradual. It is not like a wall is going up tomorrow and immigration will stop cold one day.

In a recent report, the Canada Mortgage and Housing Corporation discussed the effect of slowing population growth on real estate in Toronto:

“At least part of the reduction in ownership demand (in Toronto) over the second half of 2012 can be linked to weaker migratory flows into the region. Net migration for Ontario over the past year ending in September 2012 declined by more than 20% as a decreased number of people from other countries came to live in the province and an increased number of Ontarians migrated out. This suggests that the GTA (which doesn’t have updated data for 2012 but represents roughly 70% of the province’s migration flows), saw the number of net new people decline to below 60,000 for the first time since the late 1990s.”

Population trends are notoriously difficult to predict, but the fact that Toronto’s population growth is slowing dramatically as we head into 2013 is one more reason to be concerned.

Comment: And yet you use it to make predictions.

5) Condo prices are now falling

Finally, and perhaps as a logical result of the weakness in the condo market in late 2012, prices are beginning to fall. The year-over-year change in the median resale price of condos and single-family homes in the GTA, as reported by the Toronto Real Estate Board. Put simply, when the trend is below zero%, it means prices are falling compared to the previous year.

Comment: And yet condo prices have risen every other year, always going up. One year is only one year. You are telling people to panic and sell, or not buy, because of 10% of a decade-long trend? That does not sound like practical financial advice.

Resale prices for condos are now slightly below what they were a year ago. Barring a major change in current sales and inventory trends, it doesn’t appear that prices will rebound soon. But the recent downward motion is a major change from the past 10 years – and you want to act immediately on that, rather than wait it out to see what happens. All prices rise in time, given enough time. If you buy a condo now – to live in, as a home as opposed to an investment – you are more than likely going to see a higher price 5 years from you. Simple as that.

For prospective first-time buyers looking at jumping into the condo market, it certainly looks like 2013 will be a great year to sit on the sidelines and watch how this plays out. For condo owners looking to sell, be aware of the current state of the market and set your price and expectations accordingly.

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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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number of unsold condos in downtown toronto

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