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Toronto Condo Market – Boom, Bust – Banks Divided

Toronto. Again.

The question is – will the growth continue, even with 21,000 units coming on-board this year and the same scheduled for next. The Greater Toronto Region has about 5.2 million people in it, and a growth rate of about 0.4%. That would suggest about 21,000 new people (including births) – if we average it out to the 2.1 people/family, that’s about 10,000 new units required. So we have an oversupply of 11,000 units/year in just condos alone – not including low-density housing.

To this the Bank of Canada, in regards to Toronto, has indicated:

The supply of completed but unoccupied condominiums is elevated, which suggest a heightened risk of a correction in this market.

In July of this year, the RBC said:

We believe that the attractiveness of investing in condominiums will gradually diminish … [and the overall housing market will be] mainly flat in 2011 relative to 2010, with some wakness emerging next year.

If you’re pro about market growth (average unit cost in November was up 8% from last year), National Bank Financial analyst Stefane Marion indicates that the current inventory of Toronto units could sell in 19.3 months – well below market lows of up to 48 months historically. You can also see in that Montreal, a reasonable close major metropolitan, condominium construction is up 68% year over year. It is unclear if this is added competition or an additional indicator that growth continues in Canada – especially the eastern heart.

I still think it’s due for a correction – earlier reports this year indicated 70% of new condominiums are investor funded. With world markets still tumbling (down 2% yesterday in financial sectors) investors will start limiting their exposure to a housing bubble. This in itself will start the downward trend on cost.

 

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