Is Toronto Due for a Condo Market Correction?

Is Toronto Due for a Condo Market Correction?A condominium-building boom is lifting Canada’s largest city into the same stratosphere as London, Sydney, Vancouver and Miami, but deepening the worries about a potential tumble.

Buyers snapped up 1,986 condominiums in Toronto in July, up 28% from a year earlier, according to the Canadian Real Estate Association. Average prices have surged 8% to 9% a year for the past five years, climbing to 304,000 Canadian dollars (US$306,900).

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In Miami, an invasion of foreign buyers inflated a speculative real-estate bubble that burst disastrously. Condominium values plunged, foreclosures soared and glitzy condo developments stood half-empty. Now, sales are rebounding because of bargain hunters, some of them from Canada.

Toronto is a long way from Miami, but the condominium boom north of the border has begun to evoke ominous comparisons, even among real-estate agents. The Toronto area is home to 1,198 condo projects with 210,000 units, according to research firm Urbanation.

About 40,000 additional condominium units are under construction, including 16,000 set to hit the market next year. “There’s more supply coming than the market really needs, unless we have a stronger economy than we have today,” says independent housing economist Will Dunning. Click here to view the full article.

 

There have been concerns for about the last ten years that there are too many condos being built in Toronto for the demand to absorb . Up until now, there hasn’t been the slightest hint of oversupply, and the fact that both resale and rental markets are tight suggests that this isn’t going to change soon. However, with the surge of new condos being completed over the next couple of years, at a time when future economic prospects are looking a bit bleak, the condo hot streak may finally come to an end. The condo market has always been like the canary in the coal mine, the first segment to reflect a change in the market, often because of rising interest rates. The second half of next year may be when we start to see higher interest rates put a major damper on the condo market, followed by the resale market as a whole. Even so, this doesn’t seem likely to result in falling prices, but rather much smaller price increases and a more balanced market.