Condo sales sizzle, up 27% in July
Analysts disagree whether GTA housing market has legs
Some argue real estate is overheated, due for a correction
TONY WONG
BUSINESS REPORTER
Condominium sales in the Greater Toronto Area are continuing to run at a sizzling pace, rising 27 per cent in July from the same month a year earlier, according to figures released by the Greater Toronto Home Builders' Association yesterday.
But the stellar numbers are creating debate by analysts over whether the market is stable and still has legs, or if it is overheated and due for a reckoning.
There were 3,371 new homes sold in the GTA in July, up 5 per cent from July 2004, according to GTHBA figures. For the first seven months of 2005, the high-rise condominium market was up 39 per cent, while the low-rise market for town homes, semi and single detached homes fell by 11 per cent.
"What I've learned is that real estate works in cycles, and when something goes up very high, one can expect an adjustment at some point," said housing economist Frank Clayton. "When something seems to be too good to be true, then it usually is."
Housing economist Will Dunning has also said he considers the volume of investor buying in the condo market "excessive."
Clayton estimated that investors purchase roughly one of every three condos. During each of the past three years, more than 10,000 condos have been completed in the Toronto area, and 12,000 are expected this year.
"I think it's fair to say that the numbers that are being sold are in excess of underlying fundamental demand," said Clayton.
Analysts say many buyers are flocking to condominiums because of affordability. Prices on single detached homes are getting out of reach for many first-s time buyers.
The GTA new home price index, the average asking price of new homes and condos, remained stable at $386,133 for low-rise homes and $284,598 for high-rise apartments.
In the second quarter, from April to June, condo sales hit 5,800 units, breaking virtually all records for a single quarter, according to Jeanhy Shim, editor of Urbanation, an industry publication that has monitored the condo market since 1981.
The most recent record was set during the 1980s housing bubble, in the third quarter of 1986, according to Toronto Census Metropolitan Area figures. "At the time, I couldn't believe what the computer was telling me, so I went back and did the numbers by hand," said Shim. "They were just incredible numbers."
However, Shim does not agree that the market is out of whack. One record that wasn't broken in the second quarter was unsold inventory, which is well below record levels, she said.
Prices have remained stable. Compared to the 1980s, when in one five-year period, prices escalated by 161 per cent, new condo prices rose only 24 per cent per square foot from 2000 to 2004, said Shim. Most condos are being purchased by end users, not by speculators, and buildings aren't being financed until the units are mostly sold.
"I think condominiums are here to stay. The developers and the banks have learned the lessons of the 80s," Shim said.
However, Clayton said average condo prices haven't moved significantly in the last year, sitting at $306 per square foot compared to $302 per square foot this time last year. "The fact that it hasn't gone up much suggests supply and demand forces are working," he said. "We're not saying the market is going to collapse completely, what we're saying is that when something is out of whack, there is usually a correction."
Additional articles by Tony Wong |
