Canada's Condominium Magazine

Housing market is correcting, rebalancing, manageable: Scotiabank

Toronto’s housing market is in the process of rebalancing, prices are moderating, demand is lessening and, barring a major economic downturn, it will continue this way for another couple of years. Demographic trends, however, remain favourable for continued expansion in both the rental and home ownership markets.That’s the latest analysis of the Toronto housing market  from Scotiabank in its Global Real Estate Trends. The report’s focus on Toronto covers much familiar territory and reaches conclusions that are more or less in line with those of the other analyses we have seen lately.

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Demographic trends continue to favour the Toronto housing market as more immigrants come here than anywhere else in Canada. Scotiabank says the market can absorb 40,000 new housing units annually.

The difficulty in predicting with any accuracy what will actually happen in any given area of the economy is highlighted boldly today. Statistics Canada released its employment numbers for May and they are wildly out of line with what analysts, as they say, had expected. Said analysts had thought we’d see about 10,000 new jobs for the month; instead, StatsCan reported 95,000. More than half of these (51,000) were in Ontario, and almost half (43,000) were in construction.

Note that the Scotiabank report predicts that the Toronto housing sector will continue to cool as a result of a “sub-par economic performance.” Even allowing for the inherent volatility in monthly labour statistics reports, an increase of 95,000 jobs, the highest increase in a decade, does not seem to reflect sub-par economic performance. But of course, that could all change next month. And the  construction industry is being supported by non-residential activity, especially in the commercial and infrastructure areas.

One factor that’s notoriously  hard to get a handle on is the role of investors in the condo market. The Scotiabank report puts a number—an estimated number, to be sure—on that wild card. Roughly 50 per cent, it says, of pre-construction condominiums in “recent years” are estimated to have been purchased by investors. But this high level of activity, it says, is being “tempered” by lower expected returns. And the result? We don’t know. We’ll just have to wait and see how new projects perform “relative to existing developments and resale units.”

Prices in the condo market have leveled off, but in the low-rise segment we should expect only modest downward pressure on prices given its underlying strength.

As for the inventory of unsold homes, it is low: just 1,300 newly completed homes were unsold as of April, fewer than in several other major cities, and representing just 7 per cent of the unsold inventory nationally, the report says. The “vast majority” of new units under construction now are sold, but depending on how many of them were bought by investors, they could be back on the market again soon, the report says.

The rental market will continue to be a source of demand for new condos too. The vacancy rate for rented condominiums was just 1.2 per cent as of last October, lower than the vacancy rate in purpose-built apartments (1.7 per cent).

And with demographic trends remaining favourable—Toronto is one of the fastest growing areas in the country—the market can absorb 40,000 new housing units annually.

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