Bank of Canada issues harsh warning on condo market
The Bank of Canada issued a harsh warning today about overbuilding of high-rise housing, notably condos, the Globe & Mail reported.
“In the current context, a specific concern is that the total number of housing units under construction has been increasing and is now well above its historical average relative to the population,” the central bank said in its financial system review.
“This development is entirely accounted for by multiple-unit dwellings (which include condominium units), especially in major metropolitan areas.”
As Canada’s housing market cools, the condo sector has been of particular concern, notably in Toronto and Vancouver. Sales in both cities are down sharply after the federal government moved again in July to cool things down.
Canadian policy makers have been concerned over both the housing market and the record debt burdens among households, the central bank said earlier this week that credit growth has at least been slowing.
Today, it took a deeper look at the housing market, and at condos in particular, noting the rapid pace of construction and warning about speculative demand.
“If investor demand has helped spur levels of construction in the condominium market that are above those consistent with demographics, this market will be more susceptible to changes in buyer sentiment,” it said.
“If the upcoming supply of units is not absorbed by demand as they are completed over the next 18 to 36 months, the supply-demand imbalance will become more pronounced, increasing the risk of a sudden correction in prices.”
That, in turn, could pressure house prices in general, which itself would spread through the broader economy.
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