By Tony Wong | Tue Jul 19 2011
New home sales in the Greater Toronto Area are mirroring the heat wave blanketing the city.
Sales were up by a sizzling 53 per cent in June, representing 4,681 units, compared with the same month a year earlier of 3,050, according to figures released by RealNet Canada Inc. Tuesday.
Much of the increase was due to condominium sales, which have powered the new home market. Nearly two thirds of all sales in June were condos, up from the historical norm of about 40 per cent. The high level of sales has caused some economists to once again issue a warning about overbuilding in the market.
“Data on multi-residential starts suggest that there are still a record high number of units under construction,” said TD Bank deputy chief economist Derek Burleton in a report.
The high build up “places the regional housing market in a somewhat precarious position in the event the economy falters again,” said the economist.
Another issue is the high numbers of investors in the market, estimated to be anywhere from 45 to 60 per cent of all new condos purchased, according to the bank..
“Eroded home affordability combined with sub-par rent levels is expected to reduce investor activity in this particular segment.”
As long as the economy and population continue to expand at a modest rate, the condo market should remain stable. But a faltering economy would mean “condo performance over 2011 to 2013 is a risk,” said Burleton.
Economists from the major banks surveyed by the Star last week say that they see the market flatlining at best in 2012, with a possible correction in the works.
The condo markets in Toronto and Vancouver were seen as the most vulnerable.
One reason for continuing high sales is that housing remains attractive to buyers as low interest rates continue to stoke the market.
On Tuesday the Bank of Canada kept its key overnight rate unchanged at 1 per cent, for the seventh meeting in a row, citing slower U.S. economic growth.
However, the Bank of Montreal is calling for an interest rate hike as early as October, which could be the start of a dampening cycle.
But not all economists are in agreement.
“We still think that emerging signs of a downturn in the housing market later this year will ultimately persuade the bank to stand pat,” said Capital Economics Tuesday.
Much of the move toward high rises is because buyers have been priced out of low rise housing.
The second quarter of the year saw an estimated 40 new projects in the Toronto area come onstream, the most for any quarter. At the end of 2010, Toronto also had the most new projects being marketed than anywhere else in North America – a record 286 projects. Last year was also the second best year for condo sales on record.
For the first half of the year, new home sales are already up by 20 per cent for both high rise and low rise homes.
And prices for new housing keep climbing. High rise prices now average $461,692, up 8.3 per cent or $35,440 more than a year earlier.
Existing home sales also continued to do well in July, according to figures released by the Toronto Real Estate Board Tuesday.
The number of sales in the first half of the month was up by 35 per cent compared with last year. Average prices are also up by 9.6 per cent.
“Enhanced compeitition between home buyers continued to drive strong price growth through the first two weeks of July,” said Jason Mercer, TREB’s senior manager of market analysis. “While new listings were up year over yar in the first half of the month, seller’s market conditions were sustained as sales grew at an even greater rate.”