Wither Goes The Toronto Housing Market?

Last week saw an unprecedented amount of news reports and articles relating to and impacting upon the Canadian and in particular, the Toronto housing market. 

1.         CMHC reported that annualized housing starts in April 2014 were up 25% from the month of March, representing 195,000 units, a substantial increase over March's 157,000 units.  http://tinyurl.com/lwlqe5b

2.         Tuesday, TREB announced that the average resale home in the 416 area was $965,670 in April 2014, up 13.2% from April 2013.  This was in the face of house sales being up just 1.8% year-to-year.  Average sale prices across the GTA were up 11.6% for the past year.  Semi-detached homes were up 18% in the City of Toronto.  http://tinyurl.com/lg9aszs

3.         First quarter sales of new condominium units in the GTA according to Urbanation soared 88% to 5,140 compared to 2,728 in the first quarter of 2013.  http://tinyurl.com/lpnbmsw

4.         The OECD had good news that the Canadian economy was set to expand by up to 2.75% by 2015.  In the same report, it predicted that the housing market "should decline towards a more sustainable level".  It suggested that "mortgage insurance coverage should be limited to only part of the lenders' losses" in order to make lending more risky and limit credit availability.  http://tinyurl.com/krobpf8

5.         A month ago CMHC tightened the screws on insurance by eliminating its mortgage insurance from people buying multiple properties, another nail attempted to be placed in the investor coffin by CMHC and the federal government.

6.         China announced earlier this week a massive drop in housing by almost 47% with other economic indicators clearly indicating a major slowdown in their economy.  Given that Canada is a major exporter of commodities and fuel to China, the news is potentially troubling.

So where are we?  The condominium market clearly has heated up in 2014 after taking a very significant breather in 2013.  Low-rise continues to lag and drop with low-rise being 8% below 2013's total.  Construction starts are up 35% in April 2014, reflecting all of the earlier sales in 2011 and the delay in construction starts due to the bad weather in March 2014.

Although the price for single family homes on the resale side has gone up dramatically, price increases for condominiums lag behind.  Condominiums are still the entry point for many first-time buyers.  Developers continue to find new ways to design buildings and to market their properties.  After the initial burst of sales for most new projects, the issue always remains as to how to sell the balance of the units.  Once the minimum pre-sales are met for financing purposes, deposits drop and incentives escalate. 

The first 4 months of 2014 in the GTA for condominiums appear to be spectacular.  When put in perspective, however, they are only 5% above the 5 year average sales numbers produced by Urbanation and it still remains the investor buying for rental which is driving the condominium market, not the end user.  The question remains whether that appetite will continue unabated.  The industry continues to be unable to produce affordable family-sized condominiums in the GTA due to a myriad of obstacles, such as bureaucratic delays in processing applications, the high cost of land, significant government taxes such as HST, development charges, park levies and Section 37 charges. 

In Toronto, one of the biggest obstacles for both resale and new homes is the 3% Land Transfer Tax which is double the rest of Ontario.  Notwithstanding Rob Ford's election promises, it remains fully in place.  It may well be that given the high cost of moving, more Torontonians are staying in their homes and renovating rather than moving.  Another reason for the high cost of re-sales, however, no supply (just like the new home market).

It is therefore timely that the Land and Development Conference is being held at the Metro Toronto Convention Centre tomorrow, May 13, 2014, where close to 600 industry participants will be gathering to hear industry experts to provide their insights on housing, land development and new home and commercial construction.  The writer will be chairing a session on the condominium industry in the GTA.  John Fox, one of my partners, will be chairing a seminar on the Bellweather Deals in Toronto.

Be there or be square!