Wednesday, August 20, 2008

Condo boom is ending, report predicts

National Post Jenny Wagler
New condos are still shooting up to crowd the Toronto skyline, but behind the scenes the condo boom times are ending, a new report predicts.
“We’re expecting a slowdown in 2009,” said Jane Renwick, editor and vice-president of Urbanation, a condominium market research company.
“So we would say that we were at 22,000 [condo] sales at the end of 2007. We’re predicting 16,000 sales to round out this year. And we’re expecting sales to dip beyond that in 2009.”
Urbanation released a report yesterday about the Toronto condo market’s second quarter of 2008.
Following record condo sales in 2007, she said, the market is now back to 2005 and 2006 levels.
Currently, she said, the market appears “more normal and predictable,” with sales volumes returning to earlier levels and prices climbing slightly.
But economic woes in the United States, a high dollar and a loss of manufacturing jobs, she said, are pointing toward a recession and a condo market contraction.
“We’re not predicting a crash by any means,” she said. “I would say that we’ll have a correction in terms of sales volume, but I don’t think we’ll have the same correction in terms of price.”
The good news, she said, is that this contraction shouldn’t be on the level of the condo market crash of 1989 to 1991.
Starting in 1986, she said, prices started increasing by 6 and 7%, quarter over quarter. In 1987, the price increases exceeded 20%, year over year.
At the end of 1988, condos were selling for 39% more than the year before. And in 1989, there were a couple of quarters with 40% price increases, year over year.
“Those things say a correction is inevitable — it’s price inflation,” she said.
And the result, she said, was that in 1991 and 1992, condo pricing dropped by 17%, 16% and 15% year over year.
But this time, she said, the price increases are more modest.
In 2007, she said, price inflation was between 10 and 12%, year over year, relative to the year prior; now it’s at 8%.
“There was some price inflation last year which always happens in a heated market, but it didn’t get out of control to the point where it was requiring a correction to bring it back down in line with value,” she said.
The number of condos being built, she said, are likely to decline from both a rise in construction costs and a credit crunch in the banking sector, which is making it tricky for less-established developers to find financing.
“So ABC developer launches a building, thinking everything is fine with what they consider the historic pre-sale requirements in order for the financing to kick in,” she said, “and the banks are saying we actually don’t have an appetite for this because we can’t.”
Even if supply diminishes, she said, Urbanation predicts that prices will flatten out as opposed to rising.
“We’re also saying that the demand will wane — hopefully those two things happen in unison and create some kind of balance,” she said.
Maureen O’Neill, the president of the Toronto Real Estate Board, said that the advantage to the current softening real estate market is its stability.
“Because it’s declining, it’s correcting, it’s balancing to make it a lot more stable,” she said. “At least now we know what we’re looking at.”

David Pylyp - I concur with many remarks made in this article. With a slightly slower market, things take longer to sell (days on market) and there is greater opportunity for the buyers to examine and ultimately compare complex to complex features and values.

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