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Toronto Condominium Market Outlook

Although condominium starts in Toronto are expected to post back-to- back declines in 2006 and 2007, the medium-term outlook for the condominium market remains strong. Starts are forecast to increase from 2008 to 2011, while price growth is expected to grow at a healthy clip.

Toronto’s condominium market has been red-hot. Sales of existing apartments increased for 10 consecutive years, more than doubling from 7,100 units in 1995 to 17,700 units in 2005. Prices also rose dramatically, with the existing condominium apartment price increasing by nearly 75 per cent between 1994 and 2005. This feverish activity has been the result of pent-up demand that built up during the housing correction of the early 1990s, as well as low mortgage rates, steady employment and wage gains, and brisk population growth.

Fortunately, active listings have been increasing at an even faster rate than sales, alleviating some of the tightness in the resale apartment market. Active listings of apartments were up 8.6 per cent year-to-date in the third quarter of 2006, while sales were up 4.1 per cent. This allowed the sales-to-listings ratio to fall from 87 per cent in the third quarter of 2005 to 78 per cent in the third quarter of 2006. As a result, price growth has been more modest as of late. For 2006 as a whole, resale condominium price growth is projected to come in at 5 per cent.

The vigorous demand for condominiums in the resale market has spurred new condominium building. Indeed, the annual number of condominium starts has increased in 10 of the last 13 years. Construction activity has been so strong that starts reached a record high of 16,200 units in 2005. But the more balanced resale market this year has led to reduced demand for new condominiums, and so condominium starts are on pace to fall by 4.6 per cent to 15,400 units in 2006. Condominium starts are expected to fall by a further 6.3 per cent to 14,500 units in 2007, as activity in the existing market continues to moderate.

Nevertheless, demand for condominiums in Toronto is expected to remain strong over the medium term, not only because of strong population growth but also because of shifts in the age structure of the population. Toronto’s population is forecast to increase by an average of 1.9 per cent per year from 2007 to 2011. At the same time, the city’s population is aging; and as people age, it becomes natural for them to consider downsizing, allowing them to enjoy maintenance-free living as well as increased security. In fact, the share of the 55–74 age cohort is projected to rise from 15 per cent in 1987 to 18 per cent in 2011.

Condominiums also have the added advantage of being relatively more affordable than other types of housing. Rising home prices have resulted in demand shifting away from single detached homes, which have become too expensive for many first-time homebuyers and for some existing homeowners as well. In fact, average home prices have been increasing at a faster rate than condominium prices since 2002. In 2002, the average resale price on the multiple listing service (MLS) was roughly 40 per cent higher than that of condominium apartment prices. The gap widened to 50 per cent in 2005.

Posted on Monday, February 5, 2007 at 02:44PM by Registered CommenterElaine | CommentsPost a Comment

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