If Canada is on the cusp of a soft landing in housing someone forgot to tell condo builders.
Housing starts shot up 14 per cent to a seasonally adjusted annual rate of 244,900 in April, Canada Mortgage and Housing Corp. reported Tuesday. That compares to 214,800 starts in March.
And virtually all of the increase was due to construction of multi-unit homes in urban centres – read: condos.
Multiple urban starts soared 27.4 per cent to 158,500 – the second highest monthly reading on record..
By contrast, builders started work on just 67,700 single-family homes in April
“Wow,” Scotia Capital economist Derek Holt said in a report to clients. “This report reflects unbelievable strength in Canadian housing starts, and all of the gain was in multiples again which reflect the ongoing Canadian condo craze.”
The active condo market reflects the high volume of “presales” since last year, CMHC said. Deputy chief economist Mathieu Laberge added that the increase in condo starts is “in line with job gains over the last year.”
But there are worrying signs of a bubble emerging in key markets, such as downtown Toronto. Canada now has the highest stock of unsold newly built condos since the early 1990s, Mr. Holt pointed out.
Mr. Holt, citing a recent CMHC survey of condo owners, said nearly a quarter of condos in the Greater Toronto area are rented out and not occupied by their owners.
Condo developers in Eastern cities such as Toronto, Montreal and Ottawa, appear to be rushing to sell and build units before interest rates start to climb, and the market crashes.
“There’s little question now that Canada’s residential construction sector is heated, with the big-city condo market boasting the highest temperature,” said Bank of Montreal economist Robert Kavcic.
Finance Minister Jim Flaherty warned recently that developers appear to be willing to build new units until sales dry up, which could lead to a crash. And the last buyers in could get burned, he warned in a meeting with the Globe and Mail’s editorial board last month.
“I do worry about the last person buying a condo in Toronto, and people getting caught,” Mr. Flaherty said. He characterized the pace of condo construction as “remarkable.”
Bank of Canada Governor Mark Carney, along with many economist have expressed similar concerns about possible overheating in Canada’s housing market and the high debt levels Canadians are taking on. Canada largely escaped the global real estate slump from 2007 to 2011.
“We’re monitoring the situation,” CMHC’s chief risk officer Pierre Serre said in a later conference call.
With a file from Tara Perkins