The Greater Toronto Area’s embattled new home market may be even weaker than it appears from the official data, though there are some green shoots as the spring market gets underway, experts suggest.

In February, housing starts, which measure the rate of homebuilding, declined 28 per cent on a year-over-year basis across the Toronto metro area, which roughly spans the GTA, according to the Canada Mortgage and Housing Corporation.

However, Benjamin Tal, deputy chief economist of CIBC, said that despite the decline, the actual number of units that developers are breaking ground on may still be overcounted by as much as half. “At this point, it’s very misleading,” he said of the data.

Projects at risk

Housing starts reflect when the concrete foundation is poured rather than when construction actually begins. A large high-rise project may not reach this point until 12-to-18 months after site work begins, he said.

“What you’re seeing now is something that happened a year and a half ago. This is not what’s happening now, which means housing starts at one point will nose dive,” Tal explained.

The CMHC acknowledged that there is a lag in the starts data but added that counting a site under construction when shovels break ground runs into other problems. “Starts are intended to capture what is actually being built and will soon become housing supply,” the CMHC said in a statement.

“Measuring starts at an earlier stage risks including projects that are ultimately cancelled or stalled for extended periods of time,” adding, “In times of elevated economic uncertainty, this is particularly important for the quality of our data.”

It will take about a year for the official starts to reflect the full extent of the building bust, said Tal, who noted the weakness in new home construction and sales is concentrated in micro-condo apartments. “It’s not a dead market by any stretch of the imagination — the condo market is,” he said.

By no means roaring, the single-family segment has not been walloped as severely as investor-driven condos. In January, developers sold 184 new single-family homes across the GTA, down 26 per cent from a year ago, compared to the 85 condo units for the entire region representing a jaw-dropping 50 per cent year-over-year decline, according to the Building Industry and Land Development Association (BILD).

Experts are hopeful

Certain types of houses have been garnering more interest than others lately, and experts are hopeful that the trend gains momentum. “We’re seeing two market areas where there’s been some sales activity,” said Cheryl Shindruk, executive vice-president of Geranium, a low-rise developer. “

All of that would be in product that is priced under $1 million,” she added. These areas include smaller ground-oriented homes, including townhouses, as well as more broadly houses that have already been built and are being priced aggressively to sell.

Townhouses in particular have been a stand-out segment of the new-home market recently, suggested Pauline Lierman, vice president of market research at Zonda Urban.

In the first quarter, Zonda Urban has tracked a significant increase in developers moving ahead with townhouse projects. “It’s not gangbusters, but it’s been positive,” she said, noting interest has flared up outside the core, in Mississauga, as well as King and Vaughan.

To date this year across the Greater Toronto and Hamilton region, developers have launched sales for 15 townhome projects for a total of about 750 units, compared to the first quarter of last year, when six projects, or approximately 400 units, launched.

Of this year’s releases, about 400 homes have already sold. Not a single new condo has launched sales in Toronto since September of last year.

So severe has the condo-apartment downturn been that at least one traditionally high-rise-focused developer is doubling down on plans to build more single-family homes instead of towers.

Quiet optimism

About five years ago, spurred by a combination of high land costs and limited viable sites along with zoning and other policy hurdles, Plazacorp decided to expand its more suburban single-family presence.

Today’s condo position has pushed it further in this direction, beginning with King East Estates, a single-family development of detached, semi-detached, and townhomes currently selling in Richmond Hill. “It was becoming a little bit more difficult to build in the 416,” said Scott McLellan, CEO of Plazacorp, which has eight GTA condo projects under development but has not launched a new one in more than three years.

McLellan and others in the industry are optimistic that recently announced provincial and federal tax rebates for first-time buyers of new homes will go a ways toward breathing life back into the market.

“We’re quietly optimistic about the fall market,” he said. “When people are feeling the confidence to buy again, we think, the single-family housing market is going to come back a heck of a lot quicker than the downtown, 416 condominium market,” he added. “The condo market, I think, is still going to be quiet for another couple of years in the downtown core.”

Link to article – Toronto Sun