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Condo construction in Montreal could reach near-record levels in 2012

Condo construction in Montreal could reach near-record levels in 2012

In Greater Montreal, housing starts rose 35 per cent, year over year, in August on the strength of new condo construction.
 

In Greater Montreal, housing starts rose 35 per cent, year over year, in August on the strength of new condo construction.

Photograph by: Allen McInnis , Montreal Gazette

Greater Montreal Area condo construction is expected to hit near record-high levels in 2012, with starts rising 118 per cent last month above an exceptionally weak August 2011, Canada Mortgage and Housing Corp. said Tuesday.

Year to date, condo starts rose 19 per cent in Greater Montreal over record-breaking 2011, even as analysts once again called for a slowdown in new construction in Canada’s second largest metropolitan region. Condos now account for nearly 60 per cent of all housing starts in Greater Montreal.

“We’re expecting the numbers to soften a bit, but it (2012) is still among the strongest years we’ve ever had,” said David L’Heureux, CMHC senior market analyst for Montreal.

Indeed, with seasonally-adjusted starts for August exceeding expectations nationally, economists said developers in Canada’s largest cities will have little choice but to heed the obvious signs of a cooler resale market, including declining condo sales last month in Montreal, Toronto and Vancouver.

The drop in sales followed a move by Finance Minister Jim Flaherty to reduce the amortization rate on new government insured mortgages to 25 years from 30.

LOW COST OF BORROWING, NOT ECONOMIC GROWTH

In Montreal, year over year, condo prices actually declined slightly in August for the first time since 2008, even as active listings rose 17 per cent, offering greater choice for buyers in the resale market, the Greater Montreal Real Estate Board said this week.

“The (August CMHC) report is looking more like an historical artifact given that sales have begun to cool significantly,” said BMO analyst Robert Kavcic in a note. “Look for a gradual softening in housing starts through 2013.”

TD senior economist Jacques Marcil said demand is being driven more by the low cost of borrowing money for homes rather than economic growth.

“The rest of the economy is growing much slower and as a consequence is not likely to be able to support this level of housing supply for much longer,” Marcil warned. “While recent changes to mortgage insurance rules will likely limit the growth in demand for new homes, low interest rates remain an incentive for buyers to borrow and keep the housing market overvalued.”

Nationally, a few large condo projects in Toronto pushed August housing starts beyond analysts’ expectations, to set a seasonally adjusted annual pace of 224,900 units for the month, up from 208,000 in July.

The consensus estimate by economists had been for a seasonally adjusted annual pace of 201,000.

 

RECORD SEPTEMBER WON'T BE MATCHED

“This increase is primarily a reflection of the high level of pre-sales in some of these large multi-unit projects in late 2010 and early 2011, which is in line with job gains at that time,” said Mathieu Laberge, CMHC’s deputy chief economist. “Overall, moderation in housing starts activity is still expected for the remainder of 2012 and 2013.”

On a seasonally adjusted basis, Montreal-area starts dropped between July and August, while Quebec’s urban starts declined 9.8 per cent during that same period.

In Greater Montreal, housing starts rose 35 per cent, year over year, on the strength of new condo construction. On Montreal Island alone, condo starts rose 238 per cent in August, year over year, to 551 units in August 2012.

But L’Heureux cautioned against interpreting this leap in starts as a sign of overbuilding, or a new construction blitz since the numbers are being compared to August 2011, when new condo construction was exceptionally low. As an example of the volatility of housing figures, L’Heureux said next month’s starts will likely drop, year over year, since September 2011 had the highest level of new condo construction ever recorded in Greater Montreal.

alampert@montrealgazette.com

Twitter:@RealDealMtl

The Canadian Press contributed to this report