LONG TERM CONDO MARKET IS POSITIVE
Hysteria over falling prices is way overblown. First of all, everyone reports average prices for Canada and that in itself is a problem. Western Canada experienced rapid price growth and that is where prices are correcting. Toronto did not experience the same price jump and so the downside is much less. Detached housing will come under more price pressure than condos in Toronto because they had a bigger price run up. Secondly, a study by CREA, supported by several banks, shows that where the average house price declined by 10% in Canada, a weighted average to take into account a changing mix in sales – less higher priced homes and more lower priced homes are now changing hands – reduced the price drop to just 5%. But still the only way to get an accurate view is to track price changes for the same or identical unit over time. For that you need a Realtor! And that is what our Company does in our own research. In fact certain types of condo units have not dropped in price and in fact some smaller units are still increasing in value!
What is happening now is that buyers are waiting, because the experts who could not forecast the bank problems suddenly are experts in the real estate market. And people buy the story. That is why prices are softening now. A significant price correction from mortgage foreclosures and excess builder housing stock does not exist in Canada.
Long term, CMHC is forecasting a net increase of people to Toronto from a low of 65,000 to over 100,000 every year – it is going on now and it will be ongoing for the next 10 years at least. Where will these people live? The second trend is that people of all ages are moving away from detached housing into condominiums. And this is expected to continue. By next year over 60% of all new and resales in Toronto will be condominiums. At the same time, we know that several of these new condo projects sold by developers will never be built and these buyers will be come back into the market. The end result is that condo prices will continue to rise over the long term. Yes we will get some modest price corrections, but historically you can bet on the fact that prices will rise by a minimum of 5% annually over the long term. And you can take that to the bank!!