Oversupply of Condos? No. Oversupply of Analysis? Yes.

By Ben Myers
July 16, 2018

Many people, it seems, with opinions on the future of the Toronto housing market are getting media attention. Too few of them, however, actually have adequate market knowledge to make such forecasts.

The condominium market in Toronto has been a magnet for terrible forecasts that never pan out, many being made by fringe analysts. Despite these inaccurate outlooks, these “experts” continue to be sought out for their opinion.

Forecasting is difficult; my own prediction for 2017 new condominium sales in the Greater Toronto Area GTA was about 10,000 too low! Yet people complain that I’m too optimistic. Approximately 35,000 new condominiums sold last year, and many of the units were in pre-construction projects that are now seeking financing to start building. Assuming they’re successful, the GTA could see a new record-high number of condominium apartments under construction.

Rhetoric and recycled opinion

Whenever the level of highrise units hits a new high, the same rhetoric and recycled opinion is thrown out: Toronto is building too many units, there aren’t enough people to fill all these condos, investors will get nervous and flood the market with suites and prices will crash. After making the same prediction for the past 10 years, maybe they’ll be right in 2018, but I doubt it.

Over the past decade, the average number of new condo units completed annually in the Toronto Census Metropolitan Area is 16,500, according to data from CMHC. Between June 2017 and May 2018, there were 15,710 completions, lower than the long-run average. Keep in mind that in 2015, CMHC reported that there were nearly 33,000 condo completions, more than twice as many as the last 12 months. New and resale condo prices didn’t rise as quickly in 2015 as in other years, but they didn’t crash, investors didn’t sell on mass and there wasn’t the “massive oversupply” that had been all but guaranteed by some pundits in the years prior.

Grain of salt

But as they say, maybe this time is different – rising interest rates and expanded rent control might spook investors, and the Trump tariffs could stunt the economy. The new mortgage stress test will drive buyers to the more affordable condo market, the 30-year high population growth in Ontario will fill rental demand for investor-held condos, and with 700,000 Millennials in the Hamilton, Toronto and Oshawa CMAs looking to start their own households (per a recent Ryerson University study), there should be plenty of warm bodies looking for rental and condominium homes over the next decade. It’s unlikely we’ll have a condo oversupply problem over the next three years.

Take all forecasts with a grain of salt (mine included), as there is more likely an oversupply of housing analysts than one of Toronto condo units.

Buy for the long term, buy what you can afford, and do your own research. Good luck.

RELATED READING

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Why have new condo predictions in GTA been so wrong?

 

About Ben Myers

Ben Myers is President of Bullpen Research & Consulting, a boutique real estate advisory firm, that works with landowners, developers, and lenders to better inform them of the current and future macroeconomic and site-specific housing market conditions that can impact their active or proposed development projects. Follow Bullpen on Twitter at @BullpenConsult or find Ben at bullpenconsulting.ca

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