Montreal condo glut is an illusion

[LindbergMTL]

BY JAY BRYAN, THE GAZETTE

 

APRIL 9, 2009

 

 

Housing construction in Canada rebounded with surprising vigour in March, with the biggest gains in Ontario and Quebec. Still, hardly anybody believes that this foreshadows a lasting uptrend. And that's probably a good thing.

 

There are signs that some homebuilders have gotten ahead of themselves, creating an excess inventory of unsold homes and condos that needs to be trimmed in order to reduce pressure on home prices.

 

A pessimistic view this week by economists from the Toronto-Dominion Bank is that housing inventories are so bloated that new construction will plunge by more than 40 per cent this year.

 

An alternative view, from Bob Dugan, chief economist at Canada Mortgage and Housing, is that starts must, indeed, drop, but not as dramatically as that.

 

The CMHC forecast is for a decline of 24 per cent, based on the notion that builders actually did a pretty good job of cutting construction when the market weakened, leaving inventories less inflated than in past housing down cycles.

 

The Toronto-Dominion analysis quite possibly overdoes the gloom. One sign of this is that some markets - most notably, Quebec - remain a little perkier than this analysis would suggest.

 

A key reason is that Montreal's big condo market, while somewhat overbuilt, isn't nearly as sick as it might look at first glance. More on this in a minute.

 

In several other cities, however, there is evidence of growing inventories of unsold homes. In most of Western Canada, it's single-family homes, while in Vancouver and Toronto, there are signs of an inflating condo bubble.

 

So many condos are being built in Vancouver, even as a recession takes hold, that economist Grant Bishop, an author of the Toronto-Dominion housing study, expects to see as many as 4,000 unsold new condo units there by the end of this year.

 

In Toronto, where condo construction also seems to be running ahead of anticipated demand, Bishop anticipates a backlog of more than 2,000 units by year-end.

 

There also is concern among some analysts that Montreal is suffering from a huge backlog of unsold condos, based on the large number of new, vacant multiple units. But this represents a bit of confusion about a unique aspect of Montreal's market.

 

In this city, explains the senior Montreal market analyst at CMHC, Bertrand Recher, a huge chunk of the multiple market is in a category that's not nearly as significant in other big cities. It's rental housing complexes built specifically for retirees, a type of housing that's at least twice as popular among retirement-age Quebecers as among their counterparts elsewhere in Canada.

 

When you toss this kind of multiple housing development into the same pot with condos and a few row homes and semi-detached homes, you find, as the Toronto-Dominion study reports, that Montreal's inventory of new, unsold multiples is staggering - more than 3,900.

 

But this adds up apples and oranges. Recher points out that nearly half of this huge number in fact represents rental units for seniors.

 

Since it's rental housing, the notion that it's "unsold" isn't very meaningful. And since these are developments designed specifically for

 

seniors, the danger that they could one day be dumped on the market as condos is minimal.

 

While it's true that there is a large inventory vacant seniors' units - representing about 14 months' supply at the current rental rate - the market in Montreal for

 

such developments remains strong and the demographics of this province's aging population should only make it stronger.

 

As for actual condos, the unsold inventory of new units, at 1,667, is only moderately high, Recher believes. At the current pace of sales, it represents about eight months' inventory, down from a peak of 11 months in early 2007.

 

And while high-priced luxury condos are getting harder to sell, moderate-priced units, typically in the suburbs, are still moving briskly.

 

Across Canada, says Dugan, "I'm not terribly concerned about oversupply" putting more pressure on housing prices. But he does see some areas for concern, like the condo boom in Vancouver and Toronto.

 

jbryan@thegazette.canwest.com

 

Projected Average Price of Homes in Montreal Area in 2009

 

Detached Bungalow / Two-Storey / Condominium

 

2009* Per cent change 2009 Per cent change 2009 Per cent change

 

Beaconsfield: 290,000 / 5.5% / 370,000 / 5.7% / N/A / N/A

 

Côte St. Luc: 239,000 / 3.9% / N/A / N/A / 229,000 / 1.8%

 

Dorval: 243,000 / 2.3% / 244,000 / 3% / 212,000 / 1.9%

 

Lachine: 224,000 / 1.8% / 232,000 / 3.1% / 247,000 / 2.9%

 

LaSalle/Verdun: 198,000 / -3.4% / N/A / N/A / 165,000 / 4.4%

 

Montreal West: N/A / N/A / 360,000 / -1.4% / N/A / N/A

 

Notre Dame de Grâce: N/A / N/A / 375,000 / 1.4% / 230,000 / 0%

 

Westmount: N/A / N/A / 610,000 / -10% / 260,000 / -5.1%

 

Montreal: 232,375 / 2% / 330,056 / -0.7% / 206,528 / 0%

 

* 2009 prices are first-quarter averages, N/A: Information not available.

 

Source: Royal Lepage

 

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