CEOs sound alarm over Toronto, Vancouver condo markets
Published Tuesday, January 10, 2012 8:50PM EST
Home construction starts rebounded in December but Canadian banks are sounding the alarm over the booming condo markets in Vancouver and Toronto.
Gordon Nixon, president and CEO at Royal Bank told a banking conference Tuesday that the Canadian housing market could see a downturn in 2012.
"When you look at markets like Vancouver and Toronto there is a level of caution from a risk perspective that is higher today than it would have been a couple of years ago," he said.
"When you look at the condo side there is probably vulnerability ... it is the area which is most vulnerable with respect to Canadian housing."
Bank of Montreal president CEO Bill Downe also said there's a risk for a downturn and said the base-case scenario is a soft landing.
"There is no question that the warning signs around the Canadian housing market have been visible for more than a year," he said, also singling out Toronto and Vancouver.
The Canada Mortgage and Housing Corp. reported Tuesday that housing starts increased to more than 200,200 units in December -- more than expected -- with condos in Toronto and the Atlantic region leading those numbers.
Economists say that condos are being built at too fast a rate, taking advantage of low-interest rates to draw in customers.
"There is now a large overhang of completed, but unoccupied multi-units as low interest rate likely fuelled some overbuilding in the condo market, which puts some downside risk to future building in this sector," TD bank economist Diana Petramala told The Canadian Press.
Petramala expected the market to cool to about 175,000 housing starts in January.
There is the worry that the condo market is being driven heavily by investors expecting the demand to continue.
"I think the hope -- and I think it's a realistic hope of the Canadian housing market plateauing and the system absorbing the excess supply that has been built up in those two cities can be worked off," Downe said.
The influx of multi-unit builds could be troubling if there's a market downturn, leaving a glut of unsold homes on the market.
Interest rates are expected to stay low all this year, but Canadian household debts remain at a record high and economic growth has remained stagnant.
up to 7.5 per cent in December and the economic growth rate is expected to only be about two per cent in 2012.