“The Feared Collapse Just has not Occurred”

When the perennial pessimistic economist, David Rosenberg, of Gluskin Sheff and Associates says that “what has really caught my eye is the housing data as the feared collapse has just not occurred despite pockets of acute weakness in the Vancouver and Toronto condo markets”, its time for the rest of the media, consumers and investors to get a reality check. 

In Michael Babad’s article in the Globe & Mail last week, Michael takes an in-depth review of housing data, housing starts, pricing, Statistics Canada Reports and interviews with a number of economists and Canada Mortgage and Housing Corporation.  http://tiny.cc/5mujsw

The conclusion is that clearly, the real estate market has cooled, largely as a result of the changes in mortgage requirements and mortgage insurance implemented by Finance Minister Jim Flaherty last spring.  Although sales have dropped moderately, i.e. Toronto dipped in January 2012 by 1.3% from the year before with prices being up actually 4.3% year-to-year and sales of new homes in the $1M range increasing by 3.5%, clearly, a housing crash has not occurred by any stretch of the imagination.

Yes, condominium construction has a slowdown resulting in new housing starts being down from 197,000 starts in December to 160,000 in January, CMHC’s 6-month floating average puts the annual pace at 203,000.  Laura Cooper, economist at RBC, viewed these statistics as representing a “gradual cooling as the market transitions to more sustainable levels of activity”.

Clearly, there has been a cooling in the real estate market, which is normal after such a tremendous run-up from 2009 to early 2012.  However, there are no material economic forces at work that would cause the market to crash as it did in 1990, with high inflation, high unemployment and high interest rates.  None of these factors are at play or are expected to be in play in the near term.

Developers are being more cautious at finding sites and launching new projects, ergo a reduction in new product for sale and as a result, less new condominium sales.

However, the right product in the right location and well-priced, will still continue to do well.  A number of condominium launches are scheduled in the early spring.  We will keep a close eye on these launches to see how well they do. 

Examples of very successful launches over the last few months are the MoDeRn  Project by Adi Developments in Burlington, a mid-rise project that sold out very well over a few weekends in late November 2012.  A major GTA success was the 10 York Project by Tridel, in partnership with Build Toronto, of over 600 units where sales are well over 80%.

What we are seeing is a market slowdown and not a market crash.  Again, a terrific time for purchasers to get into the market with a broad choice of product and more competitive pricing.