Thursday, May 10, 2012
Toronto condo market ripe for a correction?
That was the conclusion of Marc Pinsonneault, an economist with National Bank Financial, in a note he put out on Thursday titled Toronto condo market: Ripe for a correction? Mr. Pinsonneault warned in the note that the number of new condos under construction has grown to represent 34 months of Toronto’s current absorption rate — up from 20 months just six months ago.
He is worried that this creates the potential for a glut of unoccupied condos in the city. Toronto has seen large increases in the number of condos under construction before without a huge surplus of unoccupied units, but Mr. Pinsonneault wonders if this time will be different.
“According to Urbanation, unsold units in condo projects in Q1 increased 4% over Q4, and could rise by a further 9% in Q2, a worrisome trend,” he pointed out.
Mr. Pinsonneault also raised questions about the role of speculators and their potential to harm Toronto’s housing market if things start to go downhill.
“The worst outcome is that speculators continue to buy at already high prices, spurring starts, but only to find themselves unable to flip with profit down the road,” he said.
But while bubble fears have continued to hover over the Toronto housing market, Canada Mortgage and Housing Corp. said in its annual report on Tuesday that it does not see signs of overheating yet in any of Canada’s cities.
“Clear evidence of a bubble is lacking,” CMHC said. “[We] continue to monitor very closely housing prices and underlying factors such as demographic and economic fundamentals and financial conditions across all major urban centers, including condominium markets.”
So what does Mr. Pinsonneault think will be needed to ease worries over the housing boom in Toronto? Some moderating in housing starts would be a good start.
“A healthier outcome is that declining pre-selling rates cause project cancellations,” Mr. Pinsonneault said.