Toronto condo starts show no sign of cooling

The fevered pace of condominium construction in Toronto shows no signs of fizzling out.

Figures released Wednesday showed the number of condos starting construction in the city in March rose at almost twice the pace of the Canadian average for all homes as buyers ignored government warnings about the risks of excessive personal debt and high prices.

"It's incredible – busy, busy, busy," said Mark Savel, a real estate agent specializing in downtown Toronto with Re/Max Realtron Realty Inc. "I'm seeing a lot more first-timers get into the market. I'm also seeing a lot of clients cashing out and getting out of the city."

In Toronto, there are about 148 skyscrapers and high-rises under construction, far more than any other city in North America, according to data compiled by Hamburg-based Emporis. There are 400 planned developments marketing their condos across the Greater Toronto Area, near an all-time high, said Jasmine Cracknell, a market analyst in Toronto at N. Barry Lyon Consultants Ltd.

Comparing March, 2012, to March, 2011, in Toronto, work started on about 29 per cent more condos this year.

"The general feeling this year is that we're on pace for another record-breaking year," Mr. Savel said.

All that activity means economists are keeping a wary eye on the Toronto and Vancouver areas, where average selling prices for homes in the past year have risen 10 per cent to $501,614, and 5.3 per cent to $679,000, respectively.

Canada Mortgage and Housing Corp. said Wednesday that housing starts in March rose 5 per cent from February to an annual pace of 215,600, when adjusted for seasonal variations – the strongest showing since the economic crisis began in October, 2008. The increase was due primarily to multi-unit construction in Ontario and the Prairie provinces, CMHC said. In Toronto, starts soared by 91.1 per cent.

But even the latest jump in housing starts doesn't have analysts worried about a U.S.-style crash. Construction starts can rise or fall significantly from month to month, affected by a variety of factors – such as March's unseasonably warm weather, which accelerated construction schedules, or the recent mortgage wars, which convinced more people to jump into the market.

"Condo-starts numbers are notoriously volatile," said Robert Kavcic, an economist at BMO Nesbitt Burns in Toronto.

More important measures, observers say, are signs across the country that employment and the overall economy are improving.

"The economy is not doing so bad. Actually it's doing quite well," said Mathieu Laberge, deputy chief economist at the CMHC's market analysis centre. "Economic fundamentals in Canada are supporting the housing market."

In the Vancouver area, housing starts overall climbed 26 per cent last month from March, 2011, while they fell 40 per cent in Montreal.

Part of what's driving Toronto's condo-building boom "is a dearth of available new detached homes … not for lack of demand but for lack of space," Sal Guatieri, an economist at BMO Nesbitt Burns, said in a note to clients. That could boost the case for those arguing that construction is being driven by real demand, as opposed to speculation.

Housing starts are counted in relation to foundation work, even though bulldozers and dump trucks may have already been digging and hauling earth for months.

They're an important indicator of the mid-point of the sale process, Ms. Cracknell said.

Property developers can sell a million units without any of them ever being built. And these days, developers can't get construction financing until they've sold 70 per cent of the units in a project, compared with 50 per cent or 60 per cent a few years ago, she said.

While for this year Mr. Savel expects Toronto condo sales – which are different than housing starts – to break last year's record of more than 28,000, Ms. Cracknell expects a decline. The previous high totalled about 21,000 in 2007, and it takes three or four years from when a unit is sold to when the building is counted in the housing-start data, she said.

"All the cranes we're seeing right now are from how hot things were in 2007 and 2008," Ms. Cracknell said.