Record unsold condos? There's more to that story

Housing starts were up 57 per cent in May and 24 per cent year-to-date (YTD), condo absorptions were up four per cent in May and 133 per cent YTD, and pricing for new single-detached houses was up six per cent annually, according to the May 2015 figures from Canada Mortgage and Housing Corp. (CMHC). But much of the media coverage did not focus on this data. Instead the focus was on the increase in unsold condos (to 2,803 units). Although this is a record high, it represents less than 10 per cent of the completed condo supply over the past 12 months, well below many other major cities in Canada on a percentage basis.

My Twitter followers know that I’m a big baseball fan. Imagine for a second that Toronto Blue Jay Jose Bautista hits three home runs and then strikes out once in a game, and the Jays win by five runs. The next day the headline in the newspaper reads, “Bautista strikes out.” Of course that would never happen. However, strangely, this type of reporting happens all the time when it comes to residential real estate in Canada. A new housing report or new statistics are released, and the major focus of the report or data trend is ignored, while a smaller negative piece of information becomes the main focus.

The context for those unsold condos was not mentioned, and there were more issues with the way this data was reported. In certain instances these units were listed as vacant, which is not necessarily the case, as many developers rent out their unsold units. CMHC also noted that just 69 per cent of CMA condominium apartment units that completed construction in May were sold. That seems very low, and it is. A condo absorption rate of under 85 per cent has only occurred in four months over the past 10 years! Condominium market research firm Urbanation pointed out that the CMHC numbers must be miscalculated, because the area of the Toronto CMA they claim had a big jump in unsold units, actually had no completed condos in May! It is true that even a high-quality organization like CMHC can make an error now and then.

Keep in mind many developers have no problem having unsold condos at completion, as they believe that can achieve a price premium for a unit that a potential purchaser can walk through. Other developers rent out their unsold condos, as they want to grow their stock of rental properties, knowing they can sell them at any time for more than it cost to build them.

My goal of writing this article is for the readers to think more carefully about what they read and the conclusions that are made, as there may be a lot more to the story.

The Toronto condo market has done much better than my beloved Toronto Blue Jays over the past decade, but the statistics actually point to a strong finish for both of them in 2015.