Photo: James Paolo/Flickr
Oversupply is a threat to Ontario’s real estate market with a mass of new condo completions, largely concentrated in Toronto, on the horizon. A new report from Fitch Ratings raises concerns about the 80,000 new multifamily units currently being built in the province, noting construction levels are at a record high, up 50 per cent more than activity levels at the start of the building boom four years ago.
Though overall housing starts in Ontario are currently 40 per cent below their 2012 peak, 84 per cent of starts are in large multi-family developments. Once these condos come online, it could cause problems.
“With price levels relatively flat over the last six months, the significant boost to supply implied by this construction overhang could present a problem for continued price growth, with the market potentially becoming oversaturated,” said Stefan Hilts, director of the New York-based ratings agency.
Looking at the long-term effects, Fitch suggests that once a large amount of units are released, the market may see a softening of prices that would reverberate throughout the Canadian economy, impacting employment in the construction sector. “This in turn could lead to more significant downside exposure,” notes the report.
Fitch sees Ontario’s housing market as overvalued by 25 per cent. Canadian home prices, which have grown at an annualized rate of 7.6 per cent since 2009, are also overvalued, but unlikely to fall thanks to a number of positive factors including limited risk in outstanding mortgage products.
Here’s a look at a chart Fitch Ratings put together displaying Ontario condo construction trends: