Monthly Archives: October 2015

CMHC Warns About Overvalued Housing Market

Homes prices in the Greater Toronto Area and across the country has been a hot topic of discussion among real estate market analysts and commentators this year. The opinions have varied, but in general, the outlook is not great…unless you’re looking to sell. Home prices keep escalating to record highs, prompting some to state the market is headed for a crash. And the most recent statistics to come out of the Canadian Mortgage and Housing Corporation reaffirms the idea that the country’s real estate bubble is set to burst.

The CMHC said in its Housing Market Assessment report this past Thursday warns of “problematic housing market conditions” in many of the country’s major housing markets. Toronto is definitely a primary target of concern, but so are about a quarter of the 15 biggest real estate markets in the country.

The CMHC Assessment evaluated the markets based on four criteria:

  • Overheated home sales.
  • Too many homes being built.
  • Prices increasing too quickly.
  • High prices.

Using this criteria, the agency singled out four cities for being particularly troubling: Saskatoon, Regina, Winnipeg and Toronto.

But none of the 15 cities mentioned in the report are out of hot water. Overvalued homes were identified as a “moderate” or a “strong” problem in 11 of the 15, that’s up from eight cities the CMHC identified as troublesome in their quarterly report released back in August. Vancouver, Calgary, Edmonton, Ottawa, and Montreal were among the cities listed in the 11.

According to CMHC’s chief economist Bob Dugan said:

“The most prevalent issue detected in 11 of the 15 centres covered by the HMA is overvaluation. The evidence of overvaluation has increased since the previous assessment in Toronto, Vancouver, Montreal, Edmonton and Saskatoon as price levels are not fully supported by economic and demographic factors.”

Susan Pigg of The Toronto Star notes an interesting omission in the CMHC report. In a report issued in 2014 by Dugan and the CMHC, which was heralded as “an early warning system” aimed at highlighting concerns before they could lead to a market downturn — estimated that Canadian house prices were about 3 to 4% overvalued. That report made a point to not include many figures, including a disclaimer about the complexities of risk models, choosing instead to go with a colour system (red being the worst, and so on). This year’s report had no colour system and excluded the word “risk.”Cities are now assessed to determine if they are “weak” or not.

Garry Marr of The Financial Post went as far as to question whether the situation is really all that dire. What does it mean that the CMHC won’t issue specific estimates of just how much these cities are overvalued? Does it mean the situation is worse than everyone thinks? The CMHC is the Crown corporation responsible for advising the government on housing policy, and since they won’t speculate on the possibility of a crash or exactly how much markets are overvalued, the forecast, atleast on its surface, appears to be dim.

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The Unsold Condo Controversy in Toronto

It’s been a wild, up and down year for condominium sales in the City of Toronto thus far this year. Real estate analysts for major newspapers and banks have commented on the wide spectrum of condo market conditions the city has seen just in the past ten months. Everything from tremendous over supply of condos, to red hot sales, and back again.

Jamie Sturgeon of Global News,  reported back in February about the glut of unsold condo units left available on the market. Quoting economist Sal Gautieri of BMO, over 10,000 condominiums were completed by builders in January, a record high for any month in Toronto, by a long shot.  Roughly eight times more than the average for the past decade. Gautieri accounted for this by arguing that a substantial number of construction delays that had accumulated in 2014 were finally being completed, completing the transaction for sales of homes that were issued in 2011, a record year for condo sales. The culmination of completed units earlier this year left 1,602 units on the market, the highest it’s been since 1994.

Toronto condosThings turned around in the summer, with some claiming that the best case scenario for the Toronto condo market had occurred. Susan Pigg of The Toronto Star, reported back on August 5th of this year that demand for condos had been strong throughout the summer, and that the overstock of unsold units had declined significantly across the GTA in the second quarter, according to developers and condo research firm Urbanation. The number of unsold units in the city dropped by 13% in the spring of 2015 versus a year prior/ Even with this decline, however, the total number of unsold units was still hovering around 17,700 by the end of June, according to the same Urbanation report.

Considering the massive fluctuation that took place this year, it’s not surprising that some analysts are skeptical of the statistics being published. According to Tamsin McMahon of The Globe and Mail, one such critic is Benjamin Tal of the Canadian Imperial Bank of Commerce (CIBC). Tal insists that those commentators who see the number of unsold condos in the city as an accurate gauge of the overall health of the market, “are barking up the wrong tree.”

According to Mr. Tal’s estimates, there are 2,000 completed, but unsold condos in the Greater Toronto Area, half in the City of Toronto, well above the long-term average for the region. Some of these unsold units can be accounted for by the housing development boom of 2012, when over 50,000 housing starts were completed, 30,000 of which are condos. Many are the echoes of record levels of housing starts in 2012, when developers began construction on 50,000 homes, of which 30,000 were condos.

The big discrepancy that Tal reveals within the recent statistics is that a quarter of unsold condos in Toronto can be found in five buildings, out of 139 active development projects. Almost a third could be attributed to just four out of 77 construction firms.

Toronto

Sales in September Keep Toronto on Pace for Record-Breaking Year

Sales across the Greater Toronto Area rose by 2.5% to 8,200 in September, keeping the city on track for a record breaking 2015 for home sales. The average selling price for all type of homes across the GTA, including condominiums, increased to $627,395, up from $574,424 when compared to this time last year.

As Jamie Sturgeon of Global News reports, this latest average price increase can be attributed to “the low-rise market segments” (single-family homes), as well as detached and semi-detached homes. The average price of a detached home in the metro area hit $1.05 million last month. The average condo price rose to $418,603 in the “416” region, up 10.7% and 5.6% respectively when compared to September 2014.

September saw a record number of home sales transactions in the GTA. According to TREB, there were 8,200 homes that traded hands last month, a record for the month of September.

Toronto Real Estate Board President Mark McLean, made a prediction in a press release:

“Barring a drastic shift in the economy over the next three months, total transactions reported by TREB Members in 2015 are expected to be at or near the 100,000 mark.”

The recent TREB data also suggests that the supply of homes is falling behind demand, with the total number of active listings at the end of September being lower than it was at the same time a year ago.

“This … suggests that competition between buyers will remain strong as we move into the fourth quarter,” according Jason Mercer, TREB’s director of market analysis.

Both Sturgeon and Garry Marr of the Financial Post points out an interesting observation, noting that the price of detached homes is escalating at a pace far faster than all other categories of homes, creating a price gap that is troublesome. Such market conditions make it next to impossible for small families living in a condo to upgrade to a home with its own backyard.

Sal Guatieri, economist at BMO, argues that this gap reflects “a consequence of land restrictions,” and that “Toronto home buyers and condo dwellers bemoan the widening chasm between single-family and condo prices.” According to his estimates, the price gap between a condo and a detached home in Toronto has doubled since 2009, up to $332,400.

And just how many potential first-time buyers might this affect? A survey released by local Toronto brokerage Re/Max Hallmark Ltd. found that over the next 18 months in the GTA, 38% of buyers will be of the first-time variety. That’s over 1 in 3 potential home buyers that may not be able to come up with the money to make their home purchasing dreams come true. According to the same survey, those first-time buyers will make an average down payment of roughly 22% of the home’s total value, a figure also estimated to average around $455,000.

Toronto Real Estate Market Update: Record Home Sales in September 2015

September 2015 has brought us a record number of transactions, bringing the total of home sales to 8,200 – a 2.5% growth compared to September 2014. TREB MLS® sales through the first nine months of 2015 amounted to 80,331, which also represented a record result and a 9.5 per cent increase compared to the first three quarters of 2014.

“We are on track for record home sales reported through TREB’s MLS® System this year. Barring a drastic shift in the economy over the next three months, total transactions reported by TREB Members in 2015 are expected to be at or near the 100,000 mark. This is a testament to the importance that GTA households put on home ownership as a long-term investment,” said Mark McLean, Toronto Real Estate Board President.

INFOGRAPHIC.SEPT2015

The MLS® Home Price Index (HPI) Composite Benchmark Price was up by 10..5 per cent year over year. The average selling price for all home types combined was also up by 9.2 per cent annually to $627,395. Growth in the MLS® HPI Composite Benchmark and the average price was driven by the low-rise market segments, including detached and semidetached houses and townhouses.

“While September was the second straight month where annual growth in new listings outstripped annual growth sales, total active listings at the end of the month still remained below last year’s level. This, coupled with the record pace of sales experienced so far this year, suggests that competition between buyers will remain strong as we move into the fourth quarter. Expect strong rates of price growth to continue through the remainder of 2015 and into 2016,” said Jason Mercer, TREB’s Director of Market Analysis.

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