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Won’t end well
Yesterday I debated online with a mess of people who hate me. Well, perchance ‘hate’ is too strong a word. Revulsion might be better. Bordering on fear.
What the likes of rock star economist Sherry Cooper, realtor-to-the-stars Elise Kalles and condo king Brad Lamb don’t get is why anyone wouldn’t want to pump real estate. After all (their arguments), rates are cheap, our banks are perfect, Mercedes have come down in price, Canada has unbridled resources, and all the poor people from Whereverstan want to move here. What’s the problem?
So as we hurled emails like deadly, flame-encrusted javelins (to be published soon in a Toronto magazine), it was hardly a fair fight. Brad held me down while Sherry and Elise pummeled the kidneys. I may never pee again.
But none of this changes the fact the gig is up. Industry insiders yesterday got access to the latest numbers on the all-important condo market in Toronto, and they are uglier than the teeth marks Cooper left on my chiseled frame.
Naturally, this pathetic blog has the scoop.
- Sales of new condos in the last three months fell off a cliff. The drop was 50% compared with the second quarter of 2011. This is unprecedented.
- The number of new, constructed and unsold units has mushroomed to 18,123. It’s the highest level ever, topping the 17,610 unsold units that were left unwanted in the middle of the 2008 financial crisis.
- Of all the new projects launched 64% of units marketed did not sell. This is the lowest absorption rate since the depths of the GFC.
And it’s not just year-over-year sales numbers which are devastating (since 2011 was a banner year). New condo sales actually tanked 21% in the last three months compared to the first quarter of 2012 – long before F murdered the 30-year mortgage, or the bank cop spelled the end of the cash-back mortgage.
Developers are looking worse than my deeply bruised but oddly magnetic abdomen. Two big developments (TUX and Triumph at One Valhalla) were launched, but then quickly iced. Another, The Perry, came to market in April but had to re-priced after sales bombed.
This is the perfect storm. On one hand, first-time buyers with the hornies are facing the end of 100% financing and higher monthly carrying costs, while having a tougher time qualifying for a mortgage. F has taken his punch bowl away in the middle of the party. Meanwhile investors – who account for almost 80% of condo sales – are fleeing. Last year up to 20,000 units were snapped by flippers, speckers and general idiots, who have realized this is now financial suicide.
After all, at current prices nobody can buy a condo and be cash flow-positive on rent unless sinking a major amount of money. And that simply makes no sense, since appreciation is slowing fast and likely to turn negative in 2013. Media coverage is now universally poor (about time), which is turning consumer confidence. And both buyers and renters are disgusted with what the developers are now offering – microunits of 400 square feet or less. New condominiums are now smaller than most garages as builders strive to keep them affordable. But at $800 or $900 a foot, they fail.
The fear is out there: investors will disappear just as end users take a pass. That means a big chunk of the 43,000 new units hurtling down the delivery pipeline will cascade onto a marketplace which can’t digest what’s already built – including those 18,123 unsold condos. There’s no other choice for many developers but to put on the brakes, return deposits and leave Toronto pock-marked with yawning construction holes.
The only shock is that anyone would be surprised.
Excuse me now. I have to bleed.
2012-08-01 21:46:43
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