Sales of new homes and condos in the Greater Toronto Area hit their second-lowest level in a decade last year, but appear to have reached a bottom, according to RealNet Canada Inc.
The 12-per-cent decline in sales of low-rise homes and 13-per-cent decline in condo sales during 2013 stem more from a lack of supply than a lack of demand, argues the real estate research firm, which is releasing annual data for the market on Wednesday in partnership with the Building Industry and Land Development Association (BILD).
"Our members can't sell product they don't have," BILD chief executive Bryan Tuckey said in an interview.
The number of new homes that were brought to market last year – 12,256 low-rise homes and 17,798 condos – was down 22 per cent from 2012, and was at the second-lowest level of the past ten years. (The low point for sales of new homes over the past decade occurred in 2008, while the low point for supply occurred in 2009).
Construction of new low-rise homes is being hampered by government policies that are designed to contain urban sprawl. Meanwhile, condo developers have scaled back after policy makers, including Finance Minister Jim Flaherty and former central bank head Mark Carney, expressed concern that too many high-rise buildings were being launched.
Sales of low-rise homes have sunk more than those of condos as the gap between the two types of homes has widened significantly.
RealNet's price index for low-rise homes in the Toronto area is $654,147, up almost 3.5 per cent from a year earlier. The high-rise index price is $436,564, up only 0.1 per cent.
The gap between the two, which now stands at $217,583, peaked at $226,016 in September. It was just $75,806 in 2011.
"What's driving the price behaviour is not coming from monetary policy, it is coming from the realm of land use and provincial and municipal development policy," RealNet president George Carras said, arguing that while low interest rates might be fuelling demand, provincial and municipal policies to prevent sprawl, encourage denser development downtown and protect green areas beyond the city are the most important factor in Toronto's new home market. "That's what's causing the supply issue, and is what's creating the gap in prices."
Condos accounted for 57 per cent of new home sales last year. The average unit size shrunk by one per cent to 796 square feet, while the average price per square foot of condos edged up 1.1 per cent to $548.
Mr. Carras said the new home market is now showing momentum.
"You've got five months in a row of increasing year-over-year results in monthly sales," he said. "That's both low-rise and high-rise. So, while 2013 was the second-lowest level in a decade, what has been shaping up is in the last five months is a notable trend up."
Sales have also been rising on a month-over-month basis.