Interesting Observation on the Toronto Condo Market after the Recession

After going through the research Ben Myers from Urbanation gave us for the show I noticed something interesting to follow up on a previous blog post. Beginning of this year was real estate Armageddon.

Sales of new condos went down to unforeseen levels. Developers were on average selling less than 5 condos per project for the first quarter...coming from a time when the developers were used to 25+ units sold per project over a quarter.

How would you react if your sales fell to 1/5th of the level it once was? I'd be sweating bullets and slashing prices.

But an interesting thing happened...prices didn't fall (resale went down slightly showing that individual owners panicked more than developers).

Simple economics here....you lower supply to keep prices the same (is life ever this simple?)

Toronto Condo Bubble Watch from Urbanation and Realnet

Interesting point from George Carras from Realnet, when the recession started last year Toronto was at record levels at inventory. Far outpacing demand.



Toronto builders adjusted strongly and brought inventories down significantly to match demand (George from Realnet feels that we are currently "under supplied" hence bidding wars).

Why did this happen? According to Ben Myers from Urbanation, the Toronto condo market is controlled by a number of well-healed developers (75% of the units in Toronto are built by "large and wealthy" developers).


As a result, the condos built in Toronto are built by financially stronger players than in other cities = no desperation to sell quickly = better able to manage supply = insurance against bubbles.

Condo glut an optical illusion?

Great show last week with George Carras from Realnet



He had the below graph that illustrated an interesting point about the Toronto housing market



As can be seen the GTA made a huge transition in 2002-2003 from low-rise (houses) to hi-rises (condo/lofts). This is due to the introduction of the green belt and the places to grow act in 2002 (encouraging intensification).

So when we see all those cranes floating around thinking we are in an over supply situation, we are actually building less units overall YTD...and we may be in a slightly under supply situation (that's why we are seeing bidding wars on downtown condos right now).


Moral: Government regulations have unintended consequences. smart investors see through the hysteria and profit.