Many say fears of Toronto Condo bust are overblown

We’re accustomed to hearing doomsday warnings about a Canadian housing bubble and reading reports that call the Vancouver housing market way too hot for its own good.

These claims are very contentious, but always inspire a healthy debate.

However, we were surprised yesterday to hear of a new report by Bank of America Merill Lynch Global Research that warned of a Toronto condo bust.

As the Financial Post wrote about the report, it’s “a rare warning in a condo market that most analysts say will continue to be supported by low rental vacancy rates and strong investor demand.”

So what gives?

“We think investors are underestimating the wall of inventory about to come on the market in the next 12-24 months, which could dampen price appreciation and investor returns,” said economists Ryan Bohren and Sheryl King, who authored the report.

Of course whenever there’s a hot market there will always be people jumping in to point out potential flaws, but many experts maintain that Toronto’s condo market is backed by real demand.

According to Shaun Hildebrand, the CMHC’s senior market analyst for the GTA, several factors suggest the risk of a correction is overblown. He noted that 95 per cent of units completed are sold, greatly diminishing the risk of rising unsold inventory. He also cited Toronto’s low rental vacancy rate which leaves condos as the only source of new rental supply.

The Financial Post also quoted Ben Myers, editor and executive VP of Urbanation, who described the rental market as “extremely hot.”

“There is great demand for rental units and that’s why investors are purchasing,” he explained.

So this bubble talk seems quite overblown to us, but we must admit it’s always good to look at the market with a critical eye to make sure we’re not getting carried away. However, this time around Toronto’s condo market is right on the money.