Price increases slow as housing mix changes
By Derek Raymaker – Globe and Mail
Well, here we are, through with 2007. You hear those crickets chirping and tumbleweed blowing down the gravel road? Those are the sounds replacing the dozens of voices that warned of a new-housing price bubble this time last year.
This is a good time to take a step back from individual projects and local markets to plow through the data collected by the good people at Canada Mortgage and Housing Corp., particularly when it comes to single-family, low-rise housing and construction.
The biggest shift to take note of in the first half of 2007 is that price increases of new single-family detached houses are now largely under control in the 905 suburbs – though with some notable exceptions.
The single detached is traditionally the dominant new-housing product in York, Durham, Halton and Peel regions, and their construction almost always takes place in the form of large-tract subdivisions. Since the provincial government’s legislative drive to freeze urban sprawl and create a protected greenbelt around the Golden Horseshoe, thousands of hectares once thought ideal for new development in these areas suddenly went out of bounds in 2004.
The next three years saw new single-family house prices explode across the suburbs, especially in Durham Region on the eastern side of Greater Toronto where they were traditionally the most affordable in the metropolitan area.
From January to May, however, the increase in average house prices has cooled – to under 10% from the same period in 2006. The exception is in Ajax, where the average price for a single detached house increased 29.8% to $433,398, just shy of $100,000 above the average price in May-to-June last year.
Richmond Hill also reports a hefty spike in single detached average price: $534,679, 17.5% above the first five months of 2006. Incredibly, already-high-end Oakville reports a whopping average single price of $748,174 – up 11.3% from the first five months of 2006. But those are really the only pockets where spikes are occurring in mass-construction housing. There are other areas, such as York’s West Gwillimbury and Peel’s Caledon that report average-price increases of more than 10%, but this is on custom-built housing built in low volume.
The most affordable single detached market in Greater Toronto is Oshawa with an average price of $298,686 for January to May, 2007, down 7.8% from the same period in 2006.
The priciest single market in the 905 is in the verdant hills of Caledon, with an average price of $765,816, but again, this is on very low volume of custom-built homes in a largely ex-urban setting. Caledon reported only 18 housing starts in the first five months of 2007. Unless you’re an investment banker, Caledon is probably not where you’re looking to buy your first house and raise a family.
Over all, the average price of a new single-family dwelling throughout Greater Toronto is $504,787 for the first five months of 2007 – 10.2% higher than the same period in 2006. Even with the moderation in price increases, that’s still a long way from what most first- or second-time buyers can afford.
This brings us to construction starts – the other big piece of the macro-market puzzle – which have been fairly sluggish. Total starts were down 15.4% in the first five months of 2007, adjusted for seasonal construction activity, to 12,004 across Greater Toronto.
More concerning is that multifamily construction starts, including condominiums, were down 23.2% from the first five months of 2006, to 7,058.
This is surprising considering the healthy pace of pre-construction sales in condominium markets throughout Greater Toronto over the past year, which would assume a quick conversion into construction.
CMHC predicts that condominium starts will take off in the second half of the year, when they will catch up with the backlog. Something to think about if you bought a pre-construction condominium and have been waiting patiently for the building to get under way.
Because of three years of hefty increases in single-family homes in the 905 suburbs, developers continue to turn strongly to multifamily dwellings to serve the largest home-buying market: young couples looking for their first home.
Multiples, including townhouses and condo suites, made up 58.8% of all housing starts in Greater Toronto in the first five months of 2007, with traditional single-family dwellings making up the remaining 41.2% of starts.
This is a reversal of housing starts five years ago, which were weighted in favour of singles by a ratio of 60-40 between 1997 and 2002.