New condos rise as market falls

Toronto's condominium boom is heading for a bust.

The record number of condo units set for completion in 2009 and beyond will drive down Toronto housing prices and cause vacancy rates to go up as some condos sit empty. By the end of September, there were 33,919 condos under construction in the Toronto metropolitan area – more than three times the city's annual average – said housing economist Will Dunning in a report on the rental and condo markets. "This very large pending inventory is setting the stage for a substantial correction," Dunning said.
The warning comes on the heels of figures yesterday showing sales of existing homes in Canada continued to slide in the year's fourth quarter. Declines were steep amid the lowest level of monthly activity in almost eight years as investors worry about the faltering Canadian economy.
"In the short term, condos are the most vulnerable aspect of the market," said CIBC World Markets senior economist Benjamin Tal. "I think there is a lot of oversupply, especially in cities such as Toronto and Vancouver."
Already, some prominent developers have warned some condo projects being marketed may not make it to completion. In a tight credit market, as falling sales hit the new home market, speculators and investors take cover.
Toronto condominium starts are normally in the 10,000 to 12,000 range annually, but a bottleneck in construction from record sales in prior years has a significant number of units still to be completed, Dunning said.
Many of those units were bought by finicky investors who are quick to exit the market if they don't get the returns they expected. Analysts say 30 per cent to 50 per cent of sales in certain buildings were to such investors, with some already set to exit the market.
As a result, the number of condos listed for sale in central Toronto is already up a stunning 75 per cent in November from those on sale a year earlier, according to Dunning. "It appears that this process – excess supply in the condo sector and owners acting to sell the units – may be underway already."
The large supply of condos will affect the apartment rental market, Dunning said, as units now under construction become available for occupancy; in effect, "With the weaker economy, the supply will exceed the need."
The Canada Mortgage and Housing Corporation reported last week the vacancy rate in the Toronto area fell sharply to 2 per cent from 3.2 per cent a year earlier, but Dunning said the supply of new condos in the coming year will keep rates from dropping further, and will likely cause vacancy rates to rise.
So far there haven't been any catastrophic failures in the Toronto area, although one key project, MintoUrban Communities Inc.'s 300-unit Minto King West site, is on hold because of slow sales.
Before the advent of the economic meltdown in the United States at the beginning of the fourth quarter, new condo prices in the Toronto area were holding up well.
Prices for new condos in the third quarter were up by 2.5 per cent over the prior quarter, or about $406 per square foot, according to market research firm Urbanation. Since then, many developers have slashed prices off their suites and added incentives such as free televisions and even a new car over the past few months.
In 2006 the average condo price in Toronto was $239,816.
Meanwhile, there was more dismal news for the national real estate market as seasonally adjusted sales for November numbered 27,743 units, according to figures released by the Canadian Real Estate Association.
Sales were down 12.3 per cent on a seasonally adjusted month over month basis, and a far steeper 42 per cent unadjusted compared with November 2007.
The national average price of a home was down 9.8 per cent to $280,880, or more than $30,000 less than a year ago.
"The report underscores that the Canadian housing correction continued in earnest," said Millan Mulraine, economics strategist for TD Securities.
British Columbia, Alberta and Ontario were the three provinces reflecting the greatest decreases, said the realtor association.
"National sales activity and price trends will continue reflecting increased cautiousness on the part of lenders and buyers as the economy works its way through and out of the recession," said the real estate association's chief economist Gregory Klump.
In cities such as Toronto, sales of existing homes plunged by 50 per cent in November, the biggest decline since April 1989 when sales dropped to 54 per cent.
Source: Tony Wong, the Toronto Star

Intertest Rates are not a Problem in Canada

Interest rates are not a problem in Canada - the Bank of Canada’s overnight rate is only 1.50% - and mortgages are available for those with reasonable credit ratings. The long-term higher-risk mortgage market has been shut down by the federal government in a delayed response to the problems that have overwhelmed the U.S. housing market.
Affordability is coming back into line as a result of new and existing homes either stabilizing or coming down in price. But the major impediment to a buying commitment is growing worries about employment and incomes. Another factor that will slow starts next year has been the buildup in unsold inventories. While this is apparent in the singles market, it is even more dramatically evident in multiples. Toronto’s condo market, for example, appears to be way overcommitted. Projects are in danger of being cancelled.

U.S. home prices down 18%

Home values in the 20 largest metropolitan areas in the U.S. dropped at a record pace in October as the fallout from the financial collapse reverberated through the housing market, according to data released yesterday. The price of single-family homes fell 18 per cent in October from a year earlier, according to the closely watched Standard & Poor's/Case Shiller Housing Index.
All 20 cities reported annual price declines in October; prices in 14 of the 20 metropolitan areas surveyed fell at a record rate as the financial crisis reached a critical point.
"October was clearly the free-fall month," said David Blitzer, chair of the index committee at Standard & Poor's. "Everything was going against us in October."
Home prices have fallen every month since January 2007, their slide accelerating as troubles in the housing market infected the broader economy and brought down financial firms. Prices are falling at their fastest pace on record, a sign the U.S. housing market is a long way from recovery.
"It is unlikely that we are anywhere near a bottom in nationwide home prices," Joshua Shapiro, chief U.S. economist at research firm MFR, wrote in a note.
The 10-city index dropped 19.1 per cent in October, its largest decline in its 21-year history, and the new numbers show the cities that hosted the greatest excesses of the housing boom are suffering the deepest drops.
Prices in Las Vegas and Phoenix, Ariz., where developers built subdivisions stretching into the desert, fell by nearly a third in October. Home prices fell 31 per cent in San Francisco and 29 per cent in Miami. Prices in New York declined 7.5 per cent in October over the same month a year ago.
Fourteen of the 20 cities in the Case-Shiller survey posted double-digit declines for the year.
The relative winner was Dallas, which had the smallest yearly decline of 3 per cent. The value of a single-family house in Detroit, which has been pummelled by closing plants and the implosion of the auto industry, was less in October than it was in October 1998.
The Case-Shiller numbers were the latest round of bleak news for the U.S. housing sector, which is at the centre of the country's broader economic troubles. Foreclosures, bad loans and collapsing housing prices contributed to the financial crisis earlier this year, and now the widening recession is dragging housing down even more.
Last week, the U.S. National Association of Realtors reported that previously owned homes, which dominate the market, suffered their sharpest drop in more than 40 years. Home values tumbled 13 per cent in November from a year earlier, the industry group reported.
Housing is likely to deteriorate further in 2009 as the jobs picture continues to weaken. The U.S. unemployment rate is now at 6.7 per cent, its highest point in a decade, and economists predict it will rise to 8 or 10 per cent next year.
"People who think they're going to lose their job don't buy a home," said Steven Ricchiuto, chief economist at Mizuho Securities.

Source: The New York Times

Canadian City Forecast

By major city, Toronto will see a marked decline in its new condo market next year. Ottawa will hang in relatively well, since it is the epitome of a government town and employment is relatively assured. Montréal is the major urban centre in a regional economy that is suffering along with the U.S. recession.
Edmonton has recorded a greater than 50% drop in starts in 2008 and should level out next year. Calgary’s new housing market will be held back by an energy sector that is struggling with oil prices at only one-third of their peak value. Vancouver is the major player in a provincial economy that, through its forestry sector, will pick up in activity faster than any other region in Canada, once U.S. housing starts show some signs of life.

Latest CMHC and CREA Data on Home Starts and Sales

Canada Mortgage and Housing Corporation (CMHC) says that housing starts plunged in November to only 172,000 units on a seasonally-adjusted annual basis, versus 212,000 units the month before. According to the Canadian Real Estate Association, the number of existing homes sold in November was the lowest since January 2001 and the national average price of homes sold was off by 10% versus a year ago.
Existing home sales more often than not tie in with new home data, since the former is often a necessary step for someone wanting to move up to the latter. Home buying confidence generally has been sent into a tailspin since the late-September crash in stock markets that weakened individuals’ and families’ financial position.

It's a buyers market!

Over the past three months the Toronto Real estate market has slowed down significantly. Consumers are definately watching there pocket books. At this time last year my listings were selling like hot cakes. This year is going to be much different! With that said I see great opportunities for buyers who have been thinking of owning there own home or homeowners who were considering upgrading. Now can be a great opportunity to buy a home at a significantly lower price than you would have paid last year for the same home. Sales are down by at least 20-30% overall depending on what area you are looking in. It seems as though sales of higher end homes, ($500 thousand +) are coming down more than your entry level homes ($500 thousand and less) so for a move up buyer with a small mortgage or no mortgage this is a great time to upgrade into that home you have been dreaming of! Buy low sell high! That's been one of my modo's forever. For a first time buyer with secure employment, good credit and a small downpayment now is a great time to get into homeownership! You would be basically buying at wholesale. Human nature is weird. When things are down nobody seems to buy, when prices are increasing and at the top of the range everybody seems to want to buy. Real estate in general will always appreciate in time overall and you will putting a roof you can call your own over your head. Why pay off the landlords mortgage when you can be paying yours off. Think about it and if you need more help feel free to contact me. I have attached a file which will show you how real estate has appreciated over the past twenty years.


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Over 3,600 Greater Toronto Area Resale Housing Sales in November

TORONTO, December 04, 2008 -- Greater Toronto REALTORS® recorded 3,640 transactions last month, from 7,313 sales in November 2007, Toronto Real Estate Board President Maureen O’Neill announced today. Year-to-date sales figures for the Greater Toronto Area show 72,086 transactions in 2008, from 88,695 sales recorded in the same January to November period a year ago. By contrast, the 2008 year-to-date average price in the GTA is $379,489, from $375,445 in 2007. “Its important for the public to understand that while sales activity has moderated in 2008, due to current economic conditions, the average price of homes has increased from 2006 still making real estate a solid long term investment,” said O’Neill. In the 416 area, 1,523 transactions took place last month, from 3,426 sales recorded in November 2007. From a year-to-date perspective, there have been 28,806 sales in the 416 area this year, from 36,804 transactions a year ago. In the 905 Region 2,117 homes changed hands last month, from November 2007’s 3,887 sales. The 905 Region’s year-to-date figures show 43,280 transactions this year, from 51,891 sales recorded during the same period in 2007. “Homeownership in the Greater Toronto Area continues to be an affordable, stable and secure investment,” said Ms. O’Neill. “Home buyers and sellers should be confident about their bricks and mortar investment which provides shelter and a place to raise a family.” “Home prices are affordable, interest rates are at historical low levels and the supply of homes for sale is good providing additional reasons for buyers thinking of entering the market,” added O’Neill. The average price of a home in the GTA last month was $368,582, from $393,747 noted in November 2007. In November 2006 the average price was recorded at $355,727. In the 416 area, last month’s average price was $390,225, from $433,859 noted in November 2007. The average price recorded in November 2006 was $381,188. From a year-to-date perspective the 2008 average price in the 416 area is $411,155, from last year’s $411,640. In the 905 Region, the average price recorded last month was $353,012, from $358,391 recorded in November of 2007. In November 2006 the average price was $335,522. The year-to-date average price in the 905 Region this year is $359,245, from $349,774 in 2007. The average number of days a home currently remains on the market in the GTA is 41, from an average of 32 days last November. There are currently 27,037 homes listed on the TorontoMLS system compared to 18,309 available properties in November 2007. “While homeownership offers immediate benefits and long term value by way of equity, it also provides tax benefits over time,” said Ms. O’Neill. “If you bought a house five years ago, it would be worth more than 20 per cent more today.” “As REALTORS®, we help build communities and will continue to do so even during challenging economic times,” added Ms. O’Neill. “It’s important to consult with a REALTOR® to get accurate local market information.”