Preconstruction sales of new low-rise homes fell 73 per cent in the Toronto area in September compared with a year earlier as the home-building sector faces major headwinds from the region's housing-market downturn.
The Building Industry and Land Development Association (BILD) said builders in the Greater Toronto Area presold just 352 low-rise homes in September – including detached and semi-detached houses as well as townhomes – after selling 1,295 low-rise homes in September last year.
The market for new condominiums also faced a drop across the GTA in September, with builders selling 1,749 units, down 37 per cent from 2,782 units last September. Combined sales of high-rise and low-rise homes dropped 48 per cent to 2,101 homes from 4,077 last year.
"The launch frenzy that had characterized the market over the past year is over," said Patricia Arsenault, executive vice-president at Altus Group, which provides data on new home sales for BILD. "Buyers now feel that they can take a bit of time to shop around, without fear of losing out."
There has been an increase in inventory of available single-family homes because more projects launched in September and more units were released at existing sites, Ms. Arsenault said in a statement. The growing availability of housing should help drive sales higher for the rest of the fall, she said.
New homes and condos are typically presold months and even years before builders begin construction, so the declining presales figures will translate to a drop in GTA housing starts during the next two years.
Canada Mortgage and Housing Corp. published a two-year housing outlook Thursday, predicting detached housing starts in the Toronto area will dip sharply in 2018 and remain lower in 2019, but forecasting modest growth in starts of multiunit buildings.
CMHC predicted single-family detached home starts in Toronto will range between 4,400 and 5,800 units in 2018 – or roughly half of the estimated 9,500 to 10,500 starts expected for 2017 – but will trend slightly higher at between 5,200 and 6,900 starts in 2019.
Multiunit building starts, however, are expected to grow slightly to between 31,900 and 35,000 units in 2018 from an anticipated level of 29,100 to 30,900 starts this year. In 2019, CMHC forecasts there will be a similar 31,900 to 36,300 multiunit starts in the GTA, suggesting levelling growth between 2018 and 2019.
Dana Senagama, CMHC's principal market analyst for Toronto, said the condo sector is expected to see lots of construction because of strong presales in 2016 – when almost 30,000 preconstruction condo units were sold – as well as strong sales so far in 2017. But she said the detached-home sector will be a drag on growth.
"It's not due to the lack of demand, it's just a lack of inventory and a lack of new site openings, largely due to land constraints and other issues associated with the low-rise housing sector," Ms. Senagama said.
CMHC also anticipates average resale home prices in the GTA will stabilize next year at a forecast range between $765,000 and $805,000 and grow modestly to between $773,800 and $826,200 in 2019. The GTA recorded an average sale price of $775,546 in September for all types of homes, so the low range of the CMHC forecast would mean little price growth over the next two years.
Slowing home construction in the GTA has also affected CMHC's national housing forecast. The housing agency predicts between 192,200 and 203,000 new housing units will be launched in 2018, a decline from 206,300 to 214,900 starts expected in 2017. In 2019, CMHC forecasts national housing starts will be virtually unchanged from 2018 at 192,300 to 203,800 units.
"We do project starts to decline in 2018 and 2019 as there will be less-stimulative economic conditions and gradually rising mortgage rates," CMHC chief economist Bob Dugan told reporters in a conference call Thursday.
CMHC also reported Thursday that Canada's housing market "continues to indicate a high degree of overall vulnerability at the national level" due to overvaluation and price acceleration, and said Toronto's market remains "highly vulnerable" despite the resent easing in the city's real estate market.
BILD, meanwhile, said on Thursday that new-home prices have fallen in the GTA. The benchmark new, low-rise home sold for $1,204,829 in September, which is 21-per-cent higher than September a year ago but a drop of 8.5 per cent from July. The benchmark price for new high-rise units was $661,188 in September, up 36 per cent over last September, but down 0.6 per cent compared with July.