BUSINESS: Study plays down condo crash,
Population, job gains drive demand: Conference Board
TORONTO If you’re sitting on the sidelines hoping for the condo market to crash, the Conference Board of Canada says you’ll have to wait.
In a report, funded by Genworth Canada, the largest private provider of mortgage default insurance in the country, the board says the sector will avoid a major downturn because of population growth and employment gains that will drive demand and soak up supply.
Sales, however, are expected to fall everywhere but Edmonton this year.
“Whether it’s first-time homebuyers entering home ownership, empty nesters looking to downsize or professionals seeking a shorter commute, condos appear to remain a popular option for urban Canadians,” Brian Hurley, chief executive of Genworth Canada, said 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 he says is overly optimistic about employment gains. “Quebec in general is falling off a cliff right now.”
Rabidoux says the Prairies may 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 fourthlargest (market in the country) and condo sales fell 12 per cent last month (from a year ago). You’ve got listings rising 36 per cent year over year.”
He says in Quebec the situation is worse with the provincial capital seeing a 51 per cent increase in listings from a year ago. In Montreal, condo sales were down 21 per cent last month from a year ago and inventory was up 24 per cent.
In its report, the Conference Board suggests Quebec will see a 7.9 per cent increase in existing condo sales in 2014 in both Montreal and Quebec City. Prices are expected to rise 1.9 per cent in Quebec City and 2.5 per cent in Montreal.
The board 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 the 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 Rabidoux.
The big test for the condo market may 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 Tal, suggesting prices are a bit misleading once you factor in the cost of those enticements. “In Toronto, the market is falling faster in the luxury market based on my conversations with developers.”
He thinks prices will come 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,” says Tal.
The Conference Board says employment will rise moderately while interest rates will inch up slowly. “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,” Robin Wiebe, senior economist at the Centre for Municipal Studies at The Conference Board of Canada, said.