Tipping Point?

For the first time in 16 years, sales of new condominiums in Toronto were lower in the second quarter than they were in the first quarter. This, according to the latest stats in from Urbanation. So what? Well, real estate is highly cyclical (at least it used to be), and the busiest months of any given year are usually during the spring market (April-May-June).  This year we sold so many condos in the winter months (5415) that we couldn’t match that total in the spring (we only sold 4991). Does this represent a tipping point in the new condo market?

Readers of this blog will know that the resale market peaked back in late March/early April. And they will also know that I’ve been preaching that the new development market would do the same, but it would just take a few more months to do so. So things are playing out in a predictable fashion so far this year but we need to know how to understand this changing market and where it is going next.

There are basically two ways of interpreting this data. One is that sales were so incredibly (and unusually) high in the first quarter of this year that we had no where to go but down. The other is that this has never happened once in the last 15 years in our market – 15 years of a nearly continuous bull market – and so this must represent a fundamental change in our market. The truth is probably somewhere in between these two extremes.

I don’t see any cause for concern that the pre-build market is about to ‘crash’ or face any significant price reductions, however, I do see and hear more caution and less optimism in developer’s voices when I speak to them and they are no longer assuming anything they throw at the market will be absorbed. My personal opinion is that given the ongoing fluctuations in the global economy and the Bank of Canada’s bi-monthly statements which assure us they have no idea what is going on either, we are entering into what could be a prolonged season of uncertainty in our real estate market. Continue to invest smart and with a long-term outlook. Buying to flip is sooo 2007.

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