Economist suggests condo bubble fears are overblown

In October, CIBC Economics published a report concluding there is no sign of an impending condo bubble. The report looked at completed and unsold condominium apartment supply in the Greater Toronto Area (GTA) and said despite the recent increase, when taken as a percentage of the total number of units recently completed, it didn’t look as dire. The author, Benjamin Tal, suggested that you have to break the numbers down further, which shows a high concentration of unsold units are located in a couple of projects and belong to just a few developers. It would be more disturbing if the unsold units were distributed evenly among the projects, which would suggest that sales in the market were declining and waning for everyone. He concluded that the unsold inventory numbers are not a sign of an impending condo bubble, and those implying so are “barking up the wrong tree.”

I did a very similar analysis for my fall 2015 Market Manuscript report released in September, and I wonder if Tal read it? If not, it is fantastic to think that such a prestigious economist as Ben Tal and I are looking at data in exactly the same way – a couple of dogs barking up the same tree!

Despite the fact that my analysis is strikingly similar to findings by Canada’s leading housing economist, I still get called biased on a regular basis. Of course if someone in the development industry would say there is no housing bubble, are they trying to sell you a condo?! If you really want to know if a highrise developer thinks Toronto is in a condo bubble, don’t follow what they say, follow their actions. Meaning, are they still buying land for future condo projects? If they thought the condo market was in a bubble about to burst, they would expect prices to decline for units and land, and forego purchasing anything until the dust settled.

In my last Market Manuscript, I showed land values tracked by MCAP Financial are increasing in downtown Toronto, and while preparing my presentation for the ULI/PWC Emerging Trends Event, where I am one of the keynote speakers, I looked at all of the high density land transactions above $3 million dollars over the past year in the GTA. Just under 20 per cent of the properties are being purchased by ‘Top 10’ developers as determined by annual unit sales, 22 per cent by the developers ranked 11 through 25, just under 23 per cent for ‘third-tier’ developers, and 13 per cent by rookie developers. Every developer from big to small is still buying land and putting their money where their mouths are. The biggest land sale was for $105 million at the corner of Yonge and Bloor in Toronto – you would really have to think the Toronto condo market was strong to make that type of commitment.

If you really want to know if the Toronto condo market is in a bubble, asking a top economist is a good start, but a better one is following the money. Are land prices increasing and are land transactions by developers increasing? If so, there is a very good chance developers feel confident in the future of the market.

Hopefully you are feeling confident about jumping into the new condominium market in 2015 or 2016. Happy condo hunting.

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