Yahoo Finance End of GTA building boom overplayed: experts
Despite a 20 per cent increase in Toronto housing starts in March, TD Economics thinks the Greater Toronto Area’s building boom is coming to an end according to a recent report.
New home construction is far removed from its peak in 2012 hovering near 2008/2009 recessionary levels on a six month moving average with completions accelerating, according to the report, hitting three times their historical average in the first two months of 2015.
“The completions data we’re watching going forward, as growing excess supply of condos remains the greatest near-term risk facing the market,” says the report. “While new and resale condo sales remain strong (up 13 per cent year-over-year), there are already three condos available on the market for each one sold, compared to the detached home market where there are only 1.5 listings for every sale.”
Ultimately, condo prices have flat-lined with resale condo prices rising three per cent year-over-year, but TD suspects the kickback from overbuilding will end up driving the prices down. Condos make up 80 per cent of new home construction in the GTA says the report.
“The increase in the supply of condos on the market is expected to push condo prices down by a moderate three to four per cent over the next two years,” says the report. “Some of the weakness in the condo market will flow into the single-family home market as move-up buyers find it more difficult to move from a condo to a single-family home – we still see growth in single-family home prices but at a more moderate rate.”
But Dana Senagrama, principal GTA market analyst at the Canada Mortgage and Housing Corporation, is timorous when it comes to relying on construction starts to forecast the market.
“I think construction, while it is a good indicator of demand, you’ve got to look at new home sales as a leading indicator of how the market is performing,” Senagrama told Yahoo Canada Finance. “Construction only happens once a sale has taken place – with the condo market you’re looking at a two year lag.”
On the flipside, she does agree with TD’s forecast for condos trumping single detached home sales.
“Where we do expect somewhat of a pullback in the next couple of years is in the low-rise categories, particularly in the single detached market just because there are some real concerns with the lack of land and of course the price of units,” says Senagrama. “You’re looking at paying on average over $850,000 for a single detached home in the GTA and that’s not the price point that a typical first time buyer will be able to get in at.”
However, the best indicator that housing demand, and therefore starts, won’t be seeing a dip anytime soon is bottom barrel mortgage rates – which she doesn’t anticipate a change in over the next year.
“That’s been the primary driver of demand for the last decade in Toronto,” she says. “With the rates being so low, we’re still going to see demand for housing (which) will translate into construction starts going forward.”
Immigration will also bolster demand says Murtaza Haider, an associate professor at the Ted Rogers School of Management.
“Because of immigration, the population has been increasing in the GTA over several years,” he says. “That increase is the real reason for demand for new housing.”
He further eschews TD’s prediction of the building boom coming to an end.
“I see greater inertia in the GTA market then elsewhere where I see things slowing down like Calgary and Saskatchewan,” he says. “But the GTA market surprises me, ridiculous things happen in Toronto – I’d stay on the fence before calling an end to the boom.”
