Expect a soft landing for Canada’s condo market: report

Canada’s condo market isn’t about to collapse as some critics suggest, but sales and prices are expected to soften in some major cities such as Toronto and Vancouver, a new report shows.

The latest Conference Board of Canada condo report claims a “soft landing” is still likely in the country’s condo market with sales propped up by population and economic growth.

The report, commissioned by private mortgage insurer Genworth Canada, says there are “pockets of higher risk” in Toronto and Vancouver, but that “a broad-based downturn is unlikely.”

"The report findings align with our view that the condo market is stabilizing and that demographics and affordability continue to drive demand" stated Genworth Canada chief operating officer Stuart Levings.

Condos are considered a controversial investment. While some believe demand will remain strong from seniors downsizing, new immigrants and people who can’t afford higher-priced homes, others worry about overbuilding in some cities and the perception that condos aren’t a good investment as compared to a single-family home.

The Genworth report is forecasting “modest price gains” for condos over the next two years in all eight cities studied in the report including Quebec City, Montreal, Ottawa, Toronto, Edmonton, Calgary, Vancouver and Victoria. In both years, Calgary will see the largest growth at 6.6 and 3.5 per cent, respectively, and Montreal the lowest at 1 and 1.7 per cent, the report states.

Toronto, considered one of the most overheated condo markets due to an aggressive build out in recent years, will “cool slightly,” the report says, but “avoid the collapse many fear.” The report says population growth and the desire to live downtown will drive condo demand in Canada’s largest city.

Higher incomes and low interest rates are expected to keep home ownership affordable in the coming years, despite rising property prices in most cities.

"Our research has long shown that the strong underlying economic factors in Canada would help most condominium markets achieve a 'soft landing'" states Conference Board senior economist Robin Wiebe. "Despite fluctuating sales and listing trends, markets are expected to be balanced across the country, with a slight lean towards the buyer in Ottawa, Montreal and Quebec City."

The condo report comes alongside the release of the Teranet-National Bank Composite House Price Index, which shows repeat sales of single-family homes rose 1.1 per cent in July versus June. Prices in Canada’s 11-largest cities were up 4.9 per cent from a year earlier, the report says.

TD Bank economist Admir Kolaj says a drop in mortgage rates back in March are “adding fuel to housing demand.” He says a lack of inventory is some major cities such as Calgary, especially in the single-family home market, is a key factor in mounting price pressures.

Still, TD is calling for the same gradual cooling that economists across Canada predict for the overall market.

“Over the medium term, we are still of the view that the housing market is bound to see a soft landing on the back of gradually rising interest rates and a moderate employment picture,” says Kolaj. “In addition, there are a record number of new homes under construction, which once completed will increase supply and help alleviate some of the price pressures.”

A separate report from Canada Mortgage and Housing Corp (CMHC) forecasts a gradual slowing for the overall housing market, due to excess supply before builders start new projects.

"Recent trends have shown an increase in housing starts, which is broadly supported by demographic fundamentals,” the report states. "However, our latest forecast calls for starts to edge lower as builders are expected to reduce inventories instead of focusing on new construction."