Photo: James Bombales
The number of new condos in the pipeline in the Greater Toronto Area might become a serious drag for the high-rise market, an economist is warning.
Will Dunning, in his July Housing Market Digest, notes that there are 62,916 rental and condo apartments under construction, a record high.
“I still think the huge under-construction inventory… points to future softening of prices, and therefore for sales,” writes Dunning.
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So far, the opposite has played out, with the index price of an existing GTA condo soaring 7.4 percent on a year-over-year basis in June, according to the Canadian Real Estate Association. But this is a byproduct of the current construction cycle, Dunning suggests.
“As I commented last month, a lull in condo completions is currently supporting price growth,” Dunning explains.
The average price of an existing GTA condo was $590,274 in June, up 5.2 percent annually, according to the Toronto Real Estate Board.
“Activity has emerged from a long period of slow sales, as price growth is encouraging buyers,” says Dunning, noting the 2,420 resale condo apartments that changed hands in June.
And the benchmark asking price for new condos available last month was $804,591, representing a 3.9-percent increase from the same time in 2018.
“But, the massive volume under construction remains a threat to future prices,” Dunning adds in his Housing Digest.
According to Rider Levett Bucknall (RLB)’s North American Crane Index, in Toronto’s downtown core alone, there are 120 cranes at construction sites, far more than observed in the other dozen urban centres tracked.
In fact, Toronto’s closest rivals, Los Angeles and Seattle, each had only 49 cranes.
Across the entire GTA, RLB counted a 246 permanent cranes, suggesting the building boom is widespread as suburban condo projects pick up.
Dunning suggests federal mortgage stress tests, which were expanded to uninsured mortgages last year, are suppressing home sales at a time when a wave of condo completions is approaching.
Looking at population growth, Dunning estimates existing home sales are 16 percent lower than normal, based on the 88,900 transactions of all housing types last month.
“[R]ecent rapid job creation, population growth at the strongest in a generation, and sharply-lower interest rates should cause sales to be above-average, not below-average,” he adds.