The cooling of Canada's two hottest housing markets has begun.
Sales of new Toronto condominiums fell by half in the second quarter from the year before, new data released Thursday show, while in Vancouver, the number of residential sales last month was the lowest for any July in 10 years.
Finance Minister Jim Flaherty has repeatedly singled out Toronto's condo market as overheated. "I also talk to developers, and I hear from some of them who are in the business of building condos that they don't really have a plan, they're just going to keep building them until people stop buying them. …It will lead to a crash," he told the Globe and Mail's editorial board recently. In late June, he tightened the rules for federal insurance for mortgages in a bid to prevent Canadians from taking on too much debt.
Even before Mr. Flaherty's move, Vancouver's property market was showing signs of easing. Residential sales dropped 11.2 per cent from June to about 2,000 properties. July had the fewest number of new listings of any month this year at 4,802, but that still left about 18,000 properties on the market in Vancouver – 18.8 per cent more than last year.
The softening market adds further support to expectations that the Bank of Canada will maintain its 1 per cent benchmark rate well into the future.
"People appear to be cautious about making significant financial decisions right now. While our local economy appears to be quite robust, there may be some concern about the impact of international markets and the federal government's tightening of mortgage regulations," said Eugen Klein, president of the Real Estate Board of Greater Vancouver.
Prices, however, are still holding up in Vancouver. The board's "benchmark price" for a typical home in greater Vancouver – including condos – is $616,000, about the same as a year ago. For a single family detached home, it's $950,000.
In Toronto, a record high 18,123 condo units were left unsold at the end of the second quarter, and condo sale prices grew at their slowest pace since early 2010. The average offering price in the second quarter was $566 per square foot, the same as the first quarter – a further sign that price inflation is cooling, said Ben Myers, an executive vice president at Urbanation, a condominium market research company.
The second quarter absorption rate, a ratio of new units built in Toronto to those sold, dropped to its lowest point since late 2008 when the market was mired in financial crisis.
"This hard data confirms the anecdotes of pulled project openings and construction delays this year," said Bank of Nova Scotia economists Derek Holt and Dov Zigler in a research report Thursday.
Mr. Myers said he expects fewer condo project launches in the second half of 2012 compared with 2011 as developers try to get rid of unsold units before starting on new projects.
But some developers are still moving ahead with construction. "Despite talk of tightening credit to condominium developers, 7,343 units started construction in the second quarter of 2012, the highest level in over a year," Mr. Myers said.
A record 343 new condo buildings are currently under construction in Toronto. "This will put downward pressure upon housing starts over the second half of 2012 as builders respond to the inventory overhang," wrote Mr. Holt and Mr. Zigler.