12

Bank of Canada warns of risk of ‘abrupt correction’ in Toronto condo market in 12-30 months


 

(Mike Cassese/Reuters)

The number of unsold units in Toronto’s high-rise projects in the pre-construction and construction phases hasn’t budged since December, the Bank of Canada said in a report released today. If those condo apartments are still without an owner when the buildings are completed 12 to 30 months from now, the BoC warned, “the supply-demand discrepancy would become more apparent, increasing the risk of an abrupt correction in prices and residential construction activity.”

Dipping condo prices, the bank continue, could trigger a market-wide reaction, the BoC said in its semi-annual review of risks to Canada’s financial system: “Such a correction would reduce household net worth, confidence and consumption spending, with negative spillovers to income and employment.” This, in turn, might threaten the ability of some borrowers to repay their loans, leading banks to tighten credit conditions. “This chain of events,” the bank concluded, “could then feed back into the housing market, causing the drop in house prices to overshoot.”

Overall, the BoC said, household debt and the housing market remain the chief domestic threats to Canada’s financial stability. The bank maintained its December assessment that such risks remain “elevated,” though it noted that the pace at which Canadians are taking on debt has slowed considerably and is now in line with the growth rate of disposable income. Sales of existing homes have leveled off after dropping from historical highs, the BoC said, and the pace of construction of new homes has also moderated. As well, house prices in most  major cities have stopped climbing.

Still, the bank remained concerned about sings of overbuilding in the Toronto condo market, an area of risk it had singled out in its December review as well, when it devoted a special section to the city’s unsold high-rise units.

The June review of the financial system was released under newly-minted Governor Stephen Poloz but most of the research and analysis underpinning it would have been conducted under former BoC Governor Mark Carney.

 


 
Filed under:

Bank of Canada warns of risk of ‘abrupt correction’ in Toronto condo market in 12-30 months

  1. Well I wouldn’t want that particular condo, but generally speaking condos have a bright future.

    Assuming of course we get things straightened out globally

    • Why do you say that? Are you certain there is not overbuilding and excess supply?

      • Shortage, excess supply….it comes and goes, but on the whole….there are large amounts of immigrants and foreign investors as well as Canadians buying into Toronto

        One of my neighbours bought a condo….Cabbagetown I think….just so he could visit there on weekends because he likes jazz. In the US the census shows rural areas are losing out to cities for the first time. Seems boomers don’t want to retire to the countryside.

  2. Plant–EmilyOne. Are you a RE agent, mortgage broker, or just specker? Whatch out for that last step, it’s a dozy. Whent he correction fully hits those who were so confident will the the first to bear the brunt of hugely overvalued assets.

    • LOL none of the above….but you might want to read Arrival City by Doug Saunders. It’s a world wide trend….even has a chapter on Toronto

  3. I think condos know are the new rental dwellings and just the time will tell. I think Canada is still building condos because of foreign investors to put up and maybe stash up some wealth.

    • Problem is that rental yields on condos are terrible in the GTA.

      • Condos were created and built to be investments – investors saw that there was an opportunity to be an early adopter and make some coin. But that opportunity won’t exist forever, like all investments. The investment purchases for new home condos has certainly slowed down in Ottawa, but home-owner purchases has picked up big time. Another book some of you should pick up to understand why the demand for condos won’t suddenly disappear – The Age Curve by Gronbach

        • typo – Condos WEREN’T created

        • On the contrary, condos are heavily marketed to investors/speculators. What you are arguing is that a correction in condo prices can’t happen. I’m arguing is that the standard principles of supply and demand and market-clearing prices apply to condos as much as they apply to other goods. If there is excess supply or deficient demand, prices will fall.

  4. I don’t care what they say, I’m not going to stop buying condoms.

Sign in to comment.