Canada Mortgage and Housing Corp. issued a dim forecast for the housing market for the next two years on Monday, predicting dismal price growth — but at least one economist thinks the Crown corporation’s numbers may be off in Canada’s most significant market.
CMHC, which advises the federal government on housing policy, isn’t predicting a massive correction for housing, but it did say that consumers can expect prices to barely keep pace with inflation through 2017 and that sales and new construction would slow down.
“In 2015, increased housing market activity in provinces like Ontario and British Columbia – provinces that have benefitted from declining energy prices, a lower Canadian dollar and continued low mortgage rates – offset slowdowns in oil-producing provinces like Alberta,” said Bob Dugan, chief economist with CMHC. “We expect, however, that this counterbalancing effect will decrease over time.”
The Crown corporation says the average price of an existing home will climb to $437,700, a 7.2 per cent increase from a year earlier. But in 2016, the annual increase will be down to 1.3 per cent and only another 1.4 per cent will be added in 2017.
CMHC expects existing home sales to decline by three per cent in 2016 but by less than one per cent in 2017. New home construction will drop by 4.7 per cent in 2016 and another 2.5 per cent in 2017 as builders try to sell off their excess inventory.
But Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal said he seriously questions the claim of excess inventory. He suggested in a report that the warnings about a glut resulted from data using just four Toronto condominium developers and questionable statistical reporting.
Tal said in his report that even the Bank of Canada has been fooled by the raw numbers about unabsorbed or unsold units that, once broken down, can prove to be a bit deceiving.
“The big question is to what extent the condo markets in (Vancouver and Toronto) are overshooting…a good starting point is to assess the trajectory of recently completed and unabsorbed units,” Tal said in the report. “An increase here suggests that developers are finding it increasingly hard to sell completed units — usually a first sign of troubles ahead.”
And in Vancouver, the number of unabsorbed units fell during the past year from just over 2,000 to the current 1,100 indicating an improving situation, he writes.
But Tal said in the Greater Toronto Area, towards the end of 2014 and early 2015, there was a notable increase in the number of completed, or fully built, condominiums.
In the Greater Toronto Area, the CMHC decided to register 10,000 condos in the month of January. Tal said that according to CMHC, the GTA had seen no fewer than 26,000 condo completions in the first half of this year — three times more than the level seen in previous years.
“Registering a completion is more art than science, as different data providers use different criteria,” said Tal.
According to the CMHC data, between December 2014 and May of this year, the number of unabsorbed units rose in Toronto from less than 1,000 to close to 3,000 — a level that is even higher than those seen in the early 1990s. But that number has since declined. Tal noted that other data providers distribute their completion count more evenly.
So where did CMHC’s original numbers go awry? About one-third of all unabsorbed units were constructed by four developers, said Tal. Five projects coming into the market at once account for about one-quarter of the unabsorbed units on the market today.
“To be sure, the GTA’s condo market will be tested as interest rates start rising in the coming years, and increased resale activity from domestic condo investors will result in excess supply and some downward pressure on prices,” said Tal. “But for now, those who look at the rise in unabsorbed units as a sign of increased vulnerability are barking up the wrong tree.”