Tara Perkins – The Globe and Mail

Toronto’s slow­ing condo mar­ket will sta­bi­lize next year, but the risk that prices will fall is greater in the longer term, Canada Mort­gage and Hous­ing Cor­po­ra­tion says.

Com­ment: Sta­blize? It is not exactly chaotic… Some years are higher than other years, no biggie.

Shaun Hilde­brand, a senior mar­ket ana­lyst for the Greater Toronto Area at CMHC, pre­sented his lat­est thoughts on the mar­ket at a con­fer­ence Wednes­day morning.

The large quan­tity of cranes dot­ting the city’s sky­line are part of the rea­son why many observers have sug­gested that Toronto’s condo mar­ket could be in a bub­ble, one that could pre­cede a sig­nif­i­cant drop in prices.

Com­ment: And every­one for­gets what a bub­ble is. The orig­i­nal bub­ble, the tulip mania of the 1600s saw prices rise almost 200 times – and then drop again – in a space of barely 6 months. That would be like a $300,000 Toronto condo ris­ing to $60,000,000 and then falling to $300,000 again in half a year. Or take Toronto in the late 1980s. Prices rose 27% in 1986, 36% in 1987, 22% in 1988 and 19% in 1989 – then fell 7% in 1990 and 8% in both 1991 and 1992. That was a com­pounded rise of 104% over 4 years fol­lowed by a drop of 23% in the next 3 years. Again, in today’s terms, that would be like that same $300,000 condo ris­ing to $752,265 in 4 years then falling to $602,753 in the next 3 years. The real­ity is that prices went from $335,907 in 2005 to $465,412 last year – a total increase of 38.6% or 5.5% per year. Not the same thing.

But Mr. Hilde­brand said he’s far less wor­ried than many. “I’m not overly con­cerned, although there are risks,” he said in an inter­view. Among those are the ris­ing pro­por­tion of con­dos that are owned by investors, and the large increase in new con­do­mini­ums that will be com­pleted in the years ahead.

Com­ment: And yet no one knows how many con­dos are owned by investors. Urba­na­tion tried to mea­sure it but had to give up because there is no data.

One risk that Mr. Hilde­brand doesn’t sub­scribe to is the much-discussed notion that for­eign investors are prop­ping up the market.

“I don’t see that there will be any sort of mass exo­dus of for­eign money,” he said. While there are no sta­tis­tics on the pro­por­tion of new con­dos that are being bought by for­eign­ers, Mr. Hilde­brand said that sur­veys by the Munic­i­pal Prop­erty Assess­ment Cor­po­ra­tion sug­gest that about 4% of the con­dos in Toronto are owned by peo­ple who don’t have Cana­dian citizenship.

Com­ment: Tridel said 5% of their buy­ers are not Cana­dian, which jibes quite nicely. And both num­bers are far below the crazy 35% num­ber thrown around in some ter­ri­ble racist arti­cles from the summer.

Mr. Hilde­brand also takes com­fort from some lessons he’s learned by study­ing the condo bub­ble that occurred in the late 1980s.

“Even though today we see that the num­ber of units under con­struc­tion is about twice as high as it was back then, the share of units that are unsold is rel­a­tively low,” he said. “When a project comes to com­ple­tion today it’s 95% presold. In the late 1980s bub­ble it was at best 60% sold.”

Com­ment: And the per­cent­age of unsold units has remained steady for a decade. The absolute value may have changed, as more units are built, but the rel­a­tive amount is unchanged.

Buy­ers also gen­er­ally put down larger deposits today, mak­ing it harder to walk away.

“Condo prices from 1985 to 1989 rose by 170%, so there was a lot of spec­u­la­tive activ­ity going on then,” he said. “And then you were enter­ing into a very sig­nif­i­cant reces­sion that hit the labour mar­ket in the early ’90s, and inter­est rates went into the dou­ble dig­its. But despite that per­fect storm we only saw prices decline by about 25% over the course of the next seven years, a rel­a­tively small amount in rela­tion to the run up, so that tells us that prices are pretty sticky on the way down.”

Com­ment: And you could buy a condo in the 80s with $1,000 down – not today. You are talk­ing $100,000 down on most new con­dos – or more. In the 1980s, peo­ple just walked away if they felt like it, which caused a few projects to collapse.

In addi­tion, Mr. Hilde­brand said that a lot of investors who bought con­dos in the late ’80s held onto them when the mar­ket got tough.

Another sta­tis­tic that gives him com­fort: he says that in the past decade condo prices have risen by about 55%, while the price of all other homes have risen by about 75%.

More­over, he com­pared Toronto prices to those in other cities around the world, and found that prices for prime condo space in areas like Lon­don and Paris are twice as high as they are for prime space in Toronto, and in New York and Tokyo they’re about 30% higher than here.

“So even though we’re see­ing all of this sup­ply, all of this build­ing tak­ing place, it’s not nec­es­sar­ily a pre­scrip­tion that prices have to decline,” he said. “In the short term we’re quite con­fi­dent that prices will hold up. They may decline slightly over the next six to nine months, but in an envi­ron­ment where inter­est rates remain low and the economy’s hold­ing sta­ble, any sort of reduc­tions in price are just going to help to improve afford­abil­ity and set the stage for a bet­ter level of sales towards the end of 2013.”

Com­ment: No, and that makes no sense. Why is that prices must fall because a lot of con­dos are being built? Peo­ple buy more iPads today than they did 5 years ago, but no one says iPad prices must fall.

While he doesn’t see sales rebound­ing to the lev­els they were at prior to the moves Ottawa made in July to tighten up the mort­gage mar­ket, he does expect them to be “a lit­tle higher” than they are now.

“The longer term comes with some greater risks,” he said. “There’s almost 50,000 units under con­struc­tion right now, an increas­ing share of investors are believed to own these units, so it’s going to be key to under­stand what they choose to do with their units when they come to com­ple­tion. Right now a lot of them are hold­ing on. But will they con­tinue to do that in the future? And the big­ger ques­tion is what demand is going to look like. It’s obvi­ously more dif­fi­cult to antic­i­pate the eco­nomic envi­ron­ment a few years out than it is say over the next year or so. So that’s where the risks lie, I would say 2014, 2015.”

Com­ment: And none of us can see the future.

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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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best month to buy condo toronto 2013

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