Canada’s condo market to dodge hard landing as population, job gains drive demand: study
A contractor walks along the outer edge of a condominium under construction in downtown Vancouver. Ben Nelms/Bloomberg
If you are sitting on the sidelines hoping for the condo market to crash, the Conference Board of Canada says you’ll have to wait.
The report, funded by Genworth Canada, the largest private provider of mortgage default insurance in the country, says the sector will avoid a major downturn because of population growth and employment gains which will drive demand and soak up supply.
“Whether it’s first-time homebuyers entering homeownership, empty-nesters looking to downsize or professionals seeking a shorter commute, condos appear to remain a popular option for urban Canadians,” said Brian Hurley, chief executive of Genworth Canada, in a release.
Critics suggest the condo market has already pulled back in some markets and could slide further as more units are built.
“It was financed by Genworth,” said Ben Rabidoux, president of North Cove Advisors Inc. about the report which he says has been over optimistic about employment gains. “Quebec in general is falling off a cliff right now.”
Mr. Rabidoux says the prairies might avoid a crash because population growth is much stronger than in Ontario and Quebec. He says condo inventory levels are already very high in some markets in the east.
“Toronto doesn’t look terrible right now. It’s down from all-time highs,” said Rabidoux, about unsold inventories. “Ottawa/ Gatineau is the fourth largest
It was financed by Genworth…Quebec in general is falling off a cliff right now
He says in Quebec the situation is worse with the provincial capital seeing a 51% increase in listings from a year ago. In Montreal, condo sales were down 13% last month from a year ago and inventory was up 24%.
The Conference Board is suggesting Quebec will see a 7.9% increase in existing condo sales in 2014 in both Montreal and the capital city. Prices are expected to rise 1.9% in Quebec City and 2.5% in Montreal.
The Ottawa-based group doesn’t see prices for condos coming down in any of the eight markets it surveyed.
“We don’t think a country wide crash is likely,” it said in its report.
Others are not so sure. “There is significant overbuilding. It could be a soft landing but it’s too early to sound the all clear alarm,” said Mr. Rabidoux.
The big test for the condo market might not come until 2015, says Benjamin Tal, deputy chief economist with CIBC World Markets Inc. The Conference Board report does not look that far into the future.
“We are already seeing prices falling and developers giving away goodies,” said Mr. Tal, suggesting prices are a bit misleading once you factor in the cost of some of those enticements to buy. “In Toronto, the market is falling faster in the luxury market based on my conversations with developers.”
He thinks prices will go down in Toronto’s condo market but not in a dramatic fashion. “It won’t be a collapse, no smoke but they will go down,” said Mr. Tal.
The Conference Board says employment will rise moderately while interest rates will inch up slowly, mitigating any disaster.
“As condo starts near past averages and inventories edge closer to demand, we are seeing the condo market stabilize both in terms of the price of existing units and the volume of new construction,” said Robin Wiebe, senior economist at the Centre for Municipal Studies at The Conference Board of Canada, in the release. “Softer prices and positive economic factors continue to make condos an affordable way for Canadians to achieve homeownership.”
Wednesday, Aug. 28, 2013