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Condo prices soften as supply exceeds demand

Condo prices soften as supply exceeds demand

Since January, new condo construction in Greater Montreal rose to 5,430 units, up eight per cent over the same period in record-breaking 2011. For Sale signs sit on Sources Boulevard at Du Village in DDO on Monday April 9, 2012
 

Since January, new condo construction in Greater Montreal rose to 5,430 units, up eight per cent over the same period in record-breaking 2011. For Sale signs sit on Sources Boulevard at Du Village in DDO on Monday April 9, 2012

Photograph by: Tim Snow , THE GAZETTE

MONTREAL - Fewer condos were started last month in the Greater Montreal Area, at a time when the number of resale units available to buyers is growing, putting downward pressure on prices.

Nationally, the pace of home-building once again surpassed expectations in June, and home prices generally rose in the second quarter. Yet some industry observers said the real estate market is now at a “tipping point.”

Prices will probably rise further in Toronto and Winnipeg, said Royal LePage Real Estate Services, in a report published Tuesday. But with inventory growing and the number of completed but empty condos remaining slightly above historic norms on Montreal Island, condo prices, especially, are expected to grow more slowly in the city during the second half of 2012 and 2013.

“Supply is growing much faster than demand due to the large number of new condominiums coming on the market in the past five years,” said Dominic St-Pierre, director of Royal LePage for the Quebec region. “This is why we anticipate a slowdown in price appreciation for the coming months.”

Since January, new condo construction in Greater Montreal rose to 5,430 units, up eight per cent over the same period in record-breaking 2011, the Canada Mortgage and Housing Corp. said Tuesday.

At the same time, there has been a 25-per-cent rise, year over year, in the inventory of what St-Pierre calls standard condos available for sale on Montreal Island.

Throw in weaker demand in response to tougher new rules on insured mortgages, including the reduction of the maximum amortization period to 25 years from 30 years, and some economists suggest there could actually be a drop in condo prices next year.

“There could be a five to 10 per cent adjustment in condo prices in Toronto and Montreal,” said Carlos Leitao, chief economist with the Laurentian Bank.

“Montreal has also had a very large increase in the supply of condos.”

During the second quarter of 2012, sales of standard condos in Montreal grew by 4.3 per cent while prices rose 3.9 per cent, year over year to $236,528, Royal Lepage said. The national average price for condos was $245,825, up from $238,064 in the second quarter of 2011.

As prices fall, it’s likely that housing starts – which increased last month, particularly in urban areas – will also dip. “Home builders will look at the prices and that could be a signal to them to slow down the pace of construction,” said Emanuella Enenajor, an economist at CIBC, who says housing prices may dip about 10 per cent over the next year or so.

Robert Kavcic, an economist with BMO Financial Group, said it can take six to eight months for new home builders to react to what’s happening in resale markets, which have been softening in major markets like Toronto and Vancouver over the last two to three months.

While Montreal’s numbers dropped last month, Quebec starts were up 17.4 per cent, seasonally adjusted, between May to June.

CMHC said urban multiple starts, such as condos and apartments, helped housing starts rise to 20,327 units across the country last month, up from 18,494 in June 2011.

On a seasonally adjusted basis, the figure was up 2.4 per cent to 222,700, from 217,400 in May.

“It’s a pretty solid number, much better than what we were expecting,” Kavcic said.

CP contributed to this report.

alampert @montrealgazette.com