Cooling GTA Condo Market Sees Sales Drop 34%

Excerpted from The Toronto Star- Moneyville
Cooling GTA condo market sees sales drop 34%

September 06, 2012

Susan Pigg

GTA house prices surged 6.5 per cent in August, despite a 12.5 per cent downturn in sales.
Richard Buchan/THE CANADIAN PRESS

Toronto’s condo market is “flashing warnings” with a 34 per cent downturn in sales in August over a year earlier, despite record-high demand just a few months ago, market watchers say.

The quick and decisive downturn in demand for resale condos is the best evidence yet that the condo boom has been largely driven by cheap and relatively easy credit rather than demographics, says analyst Ben Rabidoux of M Hanson Advisors.

The combination of Ottawa’s tightened mortgage lending rules and the fact so many first-time buyers jumped into the condo market early because of historically low interest rates means the housing market is like to suffer from a “demand gap” that could drive condo sales, and prices, even lower well into 2013, says Rabidoux.

What’s likely to keep the overall Toronto housing market from going the way of Vancouver — where August sales were 40 per cent below decade averages — is the strength of the single family home across the GTA, he added.

The unrelenting demand for the Holy Grail of housing — a simple house in the midst of all those glass and steel condos — helped push up GTA house prices 6.5 per cent in August, despite a 12.5 per cent downturn in sales, according to Toronto Real Estate Board resale home figures released Thursday.

That compares to a 22 per cent decline in condo sales in the City of Toronto and 34 per cent in the highrise downtown core.

There was, however, no evidence of a mass sell-off of condos by investors and the numbers were skewed somewhat by the fact 2011 was a record year for new condo sales, market watchers note.

There are growing concerns, however, about the growing inventory of unsold condos across the GTA and units yet to come on stream via the so-called “assignment market” — units that were bought, in many cases by investors, in the pre-construction phase over that last two years, are close to being completed and could be dumped on the market as it cools.

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The Canada Mortgage and Housing Corporation has asked Urbanation, which closely monitors the state of the GTA condo industry, to start tracking the size and impact of the assignment market. Their report should be ready by the fall.

Condo realtor Andrew la Fleur sees an up side in the downturn, although he acknowledges buyers are nervous and some are opting to rent longer and see what happens.

“I’m telling people that I think the next six months are going to be a great opportunity to buy. Things are slower. Prices are going to be down or flat. There is a good selection of units out there.

“I think we’ll see a lot of pent-up demand in the spring market from buyers waiting for a crash that just isn’t going to come unless there is some big economic downturn.”

The average price of a home in the GTA hit $479,095 last month, up from $450,323 a year earlier, according to monthly resale figures from the Toronto Real Estate Board released Thursday.

But most of that jump in prices was driven by single-family home sales in the City of Toronto (detached, semis and row houses) where demand remains so strong — and bully bids and bidding wars a virtually unavoidable fact of life — that price growth was up 15 per cent year over year, in part because of an increase in the sale of high-end homes.

The average price of a detached house in the 416 region hit $746,300, compared to $564,571 in the 905 regions.

The average price of a condo apartment was down four per cent in the City of Toronto, to $349,489 as the inventory of unsold units remains higher than usual. Condo prices were up, on average, about two per cent across the 905 regions to $275,150, according to the monthly TREB figures.

“While sales were down year-over-year in the GTA, so too were new listings. As a result, market conditions remained quite tight with substantial competition between buyers in the lowrise (single-family detached, semis and row houses) segment,” says Jason Mercer, senior manager of market analysis for TREB.

Some 6,418 homes changed hands across the GTA in August, down from 7,330 in August, 2011.