A record number of condominiums are scheduled to go on the market in Toronto in 2013 and 2014, but that doesn't mean the real estate sector is headed for a crash, according to analysis from CIBC economist Benjamin Tal.

There is excess supply in both Vancouver and Toronto, Tal said in a report released Thursday, but even if half of the new units are rented out, it will barely nudge vacancy rates for renters.

Vacancy rates, already very tight in both cities at 1.7 per cent, could edge upward by 0.3 per cent to 0.4 per cent, too little to ease pressure on rents, the report said.

No big price drop

Tal points out that 75 per cent of the new housing starts in Toronto are in multiple-unit buildings, and 35,000 units could come on the market by 2014.

That could outpace household formation, which is slowing as fewer new immigrants move to the city and young Canadians continue to delay moving out of their parents’ homes.

'A careful analysis of the magnitude of the projected supply/demand mismatch suggests a much gentler adjustment than feared by many.'- Benjamin Tal, economist, CIBC

But Tal, who has repeatedly said that Canada is not headed for a housing crash similar to what happened in the U.S., believes there will be only a moderate decline in condo prices. He calls the market in Toronto and Vancouver "reasonably balanced."

He disagrees with the Bank of Canada, which issued a report last June worrying that a falling condo market could destabilize the Canadian economy.

"But a careful analysis of the magnitude of the projected supply/demand mismatch suggests a much gentler adjustment than feared by many," Tal writes in his report

He does predict a turning point in 2014 when interest rates rise. That may force development to slow as less credit-worthy developers face difficulty getting financing.

"Canadian real estate bears are patient,' Tal writes. "For more than half a decade, they have been waiting for the inevitable crash in the Canadian housing market, only to be disappointed by a defying market.

"The market will be tested by higher interest rates. But as things stand now, those bears will have to continue to wait as interest rates are likely to remain low well into 2015."