Canada’s housing market is coming unstuck

I have run several stories in the past about Canada’s housing bubble because I have visited a number of Canadian cities over the past few years and all of them seemed to be building like mad. Vancouver and Toronto were the worst of the lot as far as condos go. But, as the United States housing market imploded, Canadians were deep in denial about what was to come.

That is about to change as this clip from the National Post makes clear.

Holly Wood’s first hint that something was “smelling fishy” in Vancouver’s champagne-infused construction market came several weeks ago, when she discovered that the presentation centre for the city’s most glamorous project was strangely closed.

The Ritz-Carlton hotel and condos is among the richest development to begin construction in Vancouver, a $2,500-per-square foot, 58-storey ultra-luxury tower with an eye-catching 45-degree twist designed by Arthur Erickson.

But that $500-million design is currently little more than a half-completed hole in the ground – the most glittering symbol of the troubled times that have humbled real estate development in Vancouver, a city that spent the last half-decade treating new condos like an evergreen money tree.

Credit turmoil, construction costs and the threat of a recession have left several towers stranded, unfinished and searching for either new designs or new money, while some developers are now threatening to sue buyers who are walking away from huge cash deposits, unwilling to commit to condos they pre-bought.

The problems have extended from suburbia to downtown Vancouver where Ms. Wood, an agent with Re/Max Masters Realty, had sold a unit in the Ritz-Carlton, a place where “cheap” begins in seven figures. But Holborn Group, the developer had not paid her commission. Concerned that something was terribly wrong, she did something that would have been unthinkable a year ago, in the days when real-estate was still quick money and worry-free.

She marched into the office of Holborn, sat in the board room and demanded her money.

National Post

I’m sure you are wondering whether she got her money. Well, read the rest of the article and find out. But, the real point of this story is that Canada is not immune. House prices there have risen far above the rate of inflation for a number of years. With Ontario in recession and the rest of Canada to follow and with the commodities boom in retreat, expect house price declines soon in previous hot markets in Ontario, BC and Alberta. You have been warned.

The only question is what the net effect will be on Canadian lenders. To date, they have been looking very good.

Related posts
Canadian housing crisis warning
Canadian housing hits the wall
Canada joins the list of housing busts
Canada’s largest province on road to recession
Canada: Boom in progress

  1. Joe327 says

    I enjoy reading your posts.
    I’m an active Real Estate Developer in the Greater Toronto Area. I was lucky enough to sell off most of my holdings in what I call the ‘Great Cash Out’ of ’06-’07. Here in Toronto there is a vast over supply of condos coming online in the next year and its going to get messy. Yonge and Bloor which is the equivalent of Times Square was demolished in the spring to make way for the Bazis Condo. Unfortunately Lehman Bros were an equity partner – Obviously the project is on hold and there is nothing but a pile of rubble there. Primo real estate – One of the first casualties… But certainly not the last.

  2. Edward Harrison says

    Joe, thanks for your on the ground analysis. It’s interesting to see Lehman involved in that deal.

    How’s demand for Condos holding up and how are the resale markets for single family homes and condos doing in Toronto?

    Agents I am in touch with seem fairly keen to get demand up, suggesting things look weak for single-family homes as well as Condos.

    In real estate, first comes demand falls, then come the price declines.

  3. Wag the Dog says

    Let’s hope the Canadians did not go as nuts as the Brits on this side of the pond.

  4. Edward Harrison says

    you probably saw the Nationwide’s numbers out today. They were grim and I looked to see how Fionnula would spin them but she was amazingly downbet. She’s just angling for a rate cut at this point. She said at least 50 bps.

  5. Joe327 says

    The above link gives a good synopsis of the current situation in Toronto. The areas which ran up in price the most ie downtown Toronto have seen the largest price decreases and sales drops. It is important to note that this is also where many of the financial service sector people live. With job cuts in that sector rising rapidly few are out house hunting on the weekends.
    The periphery which remains affordable (Toronto East for example)continue to do well. However there is a different type of buyer in that area. Most are families that are first home buyers. The sellers of those properties tend to be older retirees that purchased their home for a fraction of what it is currently worth.

    I also have a few friends that are sales people for condo developers. Their stories are all the same. The higher end units (Penthouses, large two bedrooms) continue to sell. However the bachelor, one bedroom and two bedroom condo sales market has dropped off a cliff and there is evidence that many of these potential buyers went to the rental market as rents rose 1% YOY and there was a 12% increase (from 3,641 to 4,297)in units rented last month. The rental market is comprised mostly of one and two bedroom units. It is important to note however that landlords are dropping their tenant selection criteria. Credit checks, verified income, and references are no longer required by many landlords. This is largely due to the flood of empty condo units coming online in the downtown core.
    From a developers perspective the most important market indicator I've noticed is the change in sentiment from the view that prices will never stop rising to one that prices will never stop falling.
    (Let me know if you would like the PDF for the rental analysis)

  6. Heather Seitz says

    Throughout the United States there is a growing demand for what are called “office condos.” Office condos are similar to condominium units in that each person owns a unit in an attached development. Office condominium developments give business owners a chance to own their property instead of leasing.

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