Wednesday, May 23, 2012
Drop in Toronto condo sales shows market balancing out, industry group says
The Building Industry and Land Development Association says there were 7,047 high-rises purchased over the first four months of the year, down from 8,833 for the same period a year earlier. The average high-rise apartment sold for $431,800 in April, off 3.5% from a year earlier.
The builders say home sales are in line with more typical periods during this boom and comparisons against 2011 are against a record-breaking year.
“We try to use a five-year average,” says Bryan Tuckey, chief executive of BILD, in talking about comparisons. “It’s very positive in that it’s balancing the market. You look at trends and forecasts and actual sales, it’s very seldom a straight line but these [results] are balanced to the way things have been going the past four or five years.”
The exceptions have been 2008 and 2009, years affected by the recession, and the record-breaking pace of 2011, he says. “You have to remember 2011 really was a banner year,” says Mr. Tuckey, adding he doesn’t see downward price pressure because of the demand created from people moving to Toronto.
The drop in sales didn’t come as a huge surprise to CIBC deputy economist Benjamin Tal, who says a 20% drop in sales and 10% decline in prices is what he’s been expecting — something he says will be good for the condo market. “It’s exactly what we expected.”
One factor that could also be impacting the market is the increase in interest rates earlier this year. Rates have crept back up after dropping to a record low of 2.99% on a five-year, fixed closed-rate mortgage. Royal Bank of Canada lowered the posted rate on its five-year fixed closed mortgage by 10 basis points Wednesday to 5.34%.
Not everybody is convinced the condo market is sinking. Urbanation Inc., which also tracks condominium sales, says the first quarter was the highest quarter on record. Urbanation’s stats are not out for April.
“It looks like what happened after the first quarter is that a few sites might not have done as well after their opening,” says Ben Myers, executive vice-president of Urbanation. “Our numbers don’t reflect that and it is the first time we have seen that in a long time.”
Like BILD, Mr. Myers wonders whether expectations are a little high because of 2011. “The new standard is lot different than the past standard. In 2007-2008, if somebody sold 30% of their units in the first three months after launch they would be happy. Now it’s more like 50% to 60%,” he says.
His own data indicates that GTA condo prices are relatively flat with the average sale price in the resale condo market $396 a square foot in the first quarter, down from $400 a year earlier. It was the first time since the recession in 2009 that the market had recorded a quarter over quarter decline.
George Carras, president of RealNet Canada Inc., which compiles the data for BILD, says price comparisons are difficult because condo units have shrunk.
“What has driven the price decline is size,” says Mr. Carras. “We’ve lost about 130 square feet in the index size of a condo. You are seeing prices go down. The reason is you are getting less space for less money.”
Mortgage Broker Vince Gaetano, of Monster Mortgage, wonders whether all the negativity about the condo sector has fuelled the decline. “The negative press doesn’t help,” says Mr. Gaetano, adding tougher mortgage regulations, especially a crackdown on rules for self-employed individuals, may be impacting sales.