This weeks top stories include how Europe is not moving fast enough to gain control of their debt crisis, how Toronto home prices have risen when compared to the same time last year and how the Toronto condo prices may be in for a correction as supply floods the market.
Finance Minister Jim Flaherty issued a stern warning about the need for Europe to solve their debt crisis this week during a speech in Dublin. He’s concerned that if the issue is not resolved it could set off another global recession. Flaherty addressed the European authorities in a stern manner for not moving fast enough to address the economic turmoil that’s hurting Italy, Greece and other economies in the Eurozone.
Flaherty commented by saying, “If this crisis is left unaddressed, it will eventually become too big for Europe to solve. This is why immediate action is needed. Delays will only make necessary choices more difficult, and this crisis more costly. What started as a sovereign debt crisis in smaller countries in Europe in the spring of 2010 has now spread to larger European countries, causing extreme stress in the European financial sector and threatening global growth.”
He went further by stating, “This is the world’s most immediate and pressing problem. It threatens Europe, and it threatens the strong, sustainable, and balanced growth that G20 countries have made their priority. It is threatening to bring the world to the verge of another recession. Too much time has been wasted. Too many opportunities have been missed. Unless decisive action is taken urgently, our nations will once again be forced to respond to a full-blown global crisis, albeit this time without the full arsenal of policy weapons at our disposal. Quite frankly, Europe’s response over the past year has been disappointing.”
He ended off by saying, “To be clear, this crisis could have been contained. Instead, it was allowed to grow. This crisis has now claimed Dexia and placed Europe’s banking sector in jeopardy. Is this not a sufficient signal that action is needed now? What will it take for Europe to take decisive action and put an end to this crisis, once and for all? The good news is that this crisis can still be contained and reversed, if nations summon the determination to do so. The bad news is that this crisis has already cost way too much. “
Toronto has seen home prices increase yet again as housing sales continue to move forward. Newly listed homes were up 2.7% in the month of September when compared to the previous month and were up 11% when compared to the same period last year. This year saw 361 749 homes purchased and sold through the Multiple Listing Service (MLS) between January and September. That’s 1.2% higher than the same period last year according to statistics released by the Canadian Real Estate Association (CREA) this week Monday.
CREA president Gary Morse commented, “The Canadian housing market remains a bright spot against a backdrop of mixed headline news about the global economy.” Toronto housing continues to lead sales as seasonally adjusted home prices averaged $463 480 from January to September of this year. Home prices were up 7.6% during the period when compared to the same time last year. New listings are also on the rise, which is a good sign. Last year’s lack of listings, mixed with a higher demand for homes, led to bidding wars that helped inch up home prices past the normal levels. What do you think about our housing market? Please comment below.
As stated in my previous posts, the Toronto condo market will soon be flooded with excess supply. It’s interesting how the newspapers are just catching up to this now. Major newspapers and economists are now stating that the market for condominiums in Toronto could see a 15% price correction. They went further to state that the condo market construction will also become stagnant over the next few years.
Bank of America Merrill Lynch Global Research released a report and commented, “We think investors are underestimating the wall of inventory about to come on the market in the next 12-24 months which could dampen price appreciation and investor returns.” The report also estimates that 60% of pre-construction sales in Toronto are to investors and flippers. Residential construction across Canada has continued to beat expectations with last week’s housing starts for the month of September coming in higher than expected at 206 000.
Writers of the report, Mr. Bohren and Ms. King stated, “Although this condo boom is generally seen nationwide, Toronto in particular has seen the strongest condo boom in over a decade with the number of condo units under construction at record levels. With apartment completions currently running at 18,000 and 37,000 condo units currently under construction, there is about 4.8 years’ worth of inventory in the pipeline.”
There is a large concern about the underestimation of the supply that is expected to reach the Toronto market within the next two years. An influx of supply will put downward pressure on resale prices and rents across the city. For a prime example, take a look at British Columbia who is currently going through a market correction of their own. They had a huge demand from 2000 to 2008 with construction increasing more than nine fold. When housing demand collapsed, construction continued to produce new units as inventory reached record levels. Now home prices remain 15% below the peak of 2008.
Although B.C. is an extreme example, due to the Olympics and an increase in demand prior to and after, it`s a good measuring tool. Toronto is looking like it is currently in the same down phase in the inventory cycle now when compared to B.C. This down phase is where prices stagnate or drop as construction activity also begins to decline. What do you think? Please comment below.
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