Julian Beltrame, The Canadian Press

Canada’s home-building industry was unexpectedly hot in March – particularly the condo sector in Toronto.

The latest data on residential construction surprised analysts Wednesday, with Canada Mortgage and Housing Corp. reporting 14,517 actual starts in March, giving a seasonally adjusted rate of 215,600 units a year.

That constitutes a 5% jump from the previous month and the highest level of starts since the fall of 2008.

As well, CMHC upgraded its estimates for January and February, suggesting home construction was a key component of economic growth for Canada in the first quarter of this year.

Ontario, particularly Toronto, had the country’s biggest increase in multiple-dwelling units, a group that includes condos and apartments. Multiple starts in the province jumped by 50% on a seasonally adjusted basis.

“Certainly we think the housing sector will downshift at some point … but we’re not quite at that point yet,” said Peter Buchanan, an analyst with CIBC World Markets.

Comment: Sure, but is it next year or in 10 years? It is no use making suppositions without any sort of data.

“Clearly low mortgage-financing costs are helping to support the segment. This kind of level of starts is certainly above the underlying level of household formation by 20,000 or 30,000 (annually).”

Comment: That is pretty low. There are 100-110,000 people immigrating to Toronto annually alone. Never mind those moving out of the family home or changing from renting to buying. I would say there are 150,000 people entering the housing market every year. Even with a chunk of them renting, they need somewhere to rent. With 2-3 people per family unit, you are closer to 50,000 or even 70-80,000 new households in the GTA every year.

Buchanan said the condo market may be sizzling due to demographics as baby boomers downsize from larger, detached homes, as well as international speculation and a trend to more downtown living among Canadians as the cost of commuting increases with rising gas prices.

CMHC said the condo trend is not sustainable, and many analysts agreed.

There is anecdotal evidence of a “shadow condo inventory” in Vancouver and Toronto, units that have been sold but are unoccupied and not for rent, said Scotiabank economist Derek Holt.

Comment: So one person makes up these “shadow” units and now everyone talks about them? Who cares, they are bought and paid for and not for sale.

These unoccupied units could signal foreign investors who see Canada as one of the few global real estate plays that offer good returns, Holt said.

Comment: So the “shadow” units are a good thing? Another article said they were bad. Whatever, I am not even sure I believe they exist.

But it’s always tricky to predict when or if a bubble will burst, he warned.

Comment: Nope, it is easy here. There is NO BUBBLE. Thus, it will not burst.

Holt noted that as far back as 2008, some were calling for Canada’s housing market to plunge due to the same pressures that caused the U.S. market to collapse. However, Canadian real estate hasn’t followed the same path.

Comment: Yup, those “experts” sure know what they are talking about. And the Toronto condo market was supposed to collapse back in 2003. I just feel bad for those who put too much stock into these people. I know of someone who sold off all of their investment properties last year, fully expecting the market to drop. Now those properties are worth 10% more. I do not even want to think of how much money they lost…

“We know there are stressers in the Canadian marketplace just as there were in the U.S. It’s just that you can never time the point at which they turn abruptly in the other direction,” he said. “There would need (to be) a shock.”

Comment: What stressors? We do not have a sub-prime market, which is what destroyed the US market. We have rising employment, which they did not have then. We have a stronger economy than they did. I keep hearing about these stressors but no one can point to any – except to say what “might” or “could” happen. Guessing about possibilities does not make them real.

Speaking in New York on Tuesday, Finance Minister Jim Flaherty repeated his view that the housing market is slowing, adding he has no plans to tighten mortgage rules for a fourth time in six years.

“I would prefer for the market itself to correct to the extent that a correction is necessary,” Flaherty said.

Flaherty did repeat his budget pledge to make changes to CMHC’s rules for insuring mortgage loans, saying both his Finance officials and the Office of the Superintendent of Financial Institutions were engaged in the process.

Moody’s rating service said Wednesday it foresees a soft landing for Canadian housing – not a crash – with prices rising a modest 1.1% this year on average.

Comment: Wow… at least that is more honest. A soft landing is prices rising “only” 1.1%. Better than the half-baked calls for prices to drop 25%. I bet we see national prices rising more than 1% by the end of the year, with the local Toronto market closer to 8-9%.

“But downside risks are present,” it added. “Should growth in the U.S. slow, we believe Canadian house prices would fall (slightly). Should the U.S. fall into an outright recession, Canadian house prices would fall 5.6% in 2012 and 10.3% in 2013.”

Comment: Why? US growth has been essentially negative for years now – and we have done nothing but grow. And now their economy has suddenly kick started again – which should only mean good things for us, by that logic. And there is no evidence for the US to have a recession, none at all. Like I said above, playing the guessing game does not benefit anyone.

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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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peter buchanan 1% realty

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