Condo market to ‘cool gently,’ not crash

Canada’s condo market is likely to “cool gently” rather than crash, with construction starts, and price gains, likely to be modest over the next five years, according to a report released Wednesday.

Employment and population growth, an aging demographic and low interest rates are all expected to buoy the sky-high housing sector that some analysts still fear is stuck in bubble territory, says the report by the Conference Board of Canada.

“We see a soft landing even in areas of higher risk, like Toronto,” notes the Winter 2014 Metropolitan Condo Outlook report, written on behalf of private mortgage insurer Genworth Canada.

The report looks at condo markets in eight Canadian cities, from Victoria east to Quebec City.

“Granted, there are many condominium units under construction in Toronto, but not all will be completed at once, and the rental market, for which many are headed, is tight.”

Resale condo sales and price growth were both relatively flat last year in Toronto. But with the economy improving, a shortage of single-family homes and Toronto’s real gross domestic product expected to grow by 2.8 per cent this year, demand is expected to pick up for the city’s most affordable housing stock, the report says.

That means median price growth should average 1.7 per cent this year and about 1.8 per cent between 2015 and 2018, says the Conference Board.

While a long way from the crash in values some economists had predicted over the last few years, that’s also a far cry from the heady days of Toronto’s condo boom, when prices climbed 7.8 per cent, on average, from 2009 to 2011, according to the report.

Developers are expected to get back to building after a dramatic pullback in new condo starts last year, most notably in Toronto, where sales dropped significantly and the inventory of unsold units reached record levels.

Here, condo starts dropped by more than 42 per cent in 2013, the most by far of any Canadian city.

Starts amounted to just under 16,000 units in 2013, compared to the unprecedented record of 27,413 in 2012.

Starts are expected to climb some 5.6 per cent by the end of this year, to 16,737 units, and creep up to 18,465 new condo starts by 2018, Conference Board researchers predict.

So-called “absorption rates” — the number of units sold or rented out, seen as “a measure of demand” — are expected to skyrocket by 55 per cent in Toronto this year. But since thousands of new units are expected to come to completion, that means the inventory of unsold units is also likely to climb by 30 per cent, the report notes.

That’s likely to encourage owners, and especially investors, to hang onto their units in hope that prices will pick up down the road.

“Population aging will continue to produce a growing share of condominium-loving empty-nesters aged 55 or more in all regional markets,” the report notes.