Is the condo market finally softening?

Toronto’s condo market will experience a “cyclical cooling off,” according to a new report, but experts say condo prices and sales will continue to rise, and there is still plenty of rental demand.

“There is an increasing amount of supply on the market, but at the same time prices are still rising and sales are still rising,” said Andrew la Fleur, a real estate agent at Re/Max Condos Plus in Toronto.

“Prices will continue to rise as long as people continue to buy more condos than they did before.”

The report, published by TD Economics, references a “softening in condo market conditions” that reflects a decline in new home construction in Toronto since early 2013.

“The current level of starts is well off the peak reached in 2012, and on a six-month moving average the pace of new home construction in Toronto is hovering near 2008/2009 recessionary levels,” said the report.

But Shaun Hildrebrand, senior vice president at Urbanation, said this slowdown is backwards looking. “It doesn’t reflect a slowdown in condo demand. It reflects a slowdown in project openings in 2013, because there is usually a 15 to 18 months lag between sales and starts.

“2014 was a big year for condo sales and it brought a lot of those 2013 projects’ sales figures up high. Now it’s just a matter of time before they begin to break ground.”

The TD report also warned that the greatest near-term risk facing the market is that the growing excess supply of condos in the city, pointing to CMHC figures that showed completions were three times their historical average in January and February 2015.

“Those completions that CMHC are reporting that show a huge spike actually took place last year,” said la Fleur. “If there was going to be an impact we would have felt it already.”

The TD report also said that the supply of condos on the market is expected to push condo prices down by a moderate three to four per cent over the next two years, but both la Fleur and Hildebrand both disagree.

Hildebrand added: “They are misdirected in waiting for a price decline to come out of these increases in condo completions, at least in the near term, because almost all of the new supply ends up in the rental market.”

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