Developers know that they are building too many units. They also realize that if all of those units under construction were to hit the market at the same it would tumble. After all, that's exactly what happened back in 1989. Plus developers still have unsold inventory. So what do they do then?
One reader from greaterfool.ca has the following theory:
"So we've all heard GTA's latest trend: "There's a shortage of listings". That's true, but here's why…
Last December RealNet's mouthpiece, The Toronto Star, reported the following:
More than 28,000 condos sold in the preconstruction phase in 2011, the most by far in a single year. Many are unlikely to be completed for another year or so because of construction bottlenecks — a shortage of skilled trades and equipment — that have limited completions to about 16,000 units a year.
In 2013, developers completed 50% of scheduled units. That means only half of the units (condos, townhomes and detached) that were suppose to be completed came into TO's pipeline last year, and that backlog is now expected to extend into 2014. So where's all this inventory hiding? Under construction
See that light green shaded area? Depending on what figures you believe, half of those could be speculators now trapped at the mercy of developers that are afraid of completing too many units at once, since they know those units will be flooding MLS® with listings on occupancy, and competing with developers' unsold inventory.
The premarket is where you will see the first cracks in the system, and if developers congest inventory and delay too long, there's going to be mobs of speculators trying to weasel their way out of contracts with lawsuits. This is what the Bank of Canada is watching closely and fears might unwind in a disorderly manner.