Housing Outlook 2011/2012
Ontario housing sales to rise 5 per cent in 2011, house prices increase to an average of $356,500, Central 1 predicts.
Ontario house sales will increase by about 5 per cent next year and prices will hit new records, predicts a new forecast by Central 1 Credit Union released today. The strong market will spur new home builders to increase housing starts by 9 per cent to 66,000 in 2011 and another 7 per cent in 2012, says Helmut Pastrick, chief economist with Central 1.
“In spite of the increases new home construction will remain modest compared to the last decade and there may be an undersupply of new homes by the end of 2012,” Pastrick says.
MLS® housing sales fell to an annualized rate of 155,000 units last July and have climbed since, helped by low mortgage rates, improved affordability and an improving economy. Central 1 expects sales to continue to grow early in 2011 to an annualized rate of 210,000, before tailing off in the second half as mortgage rates rise.
The forecast is for sales this year to reach 194,000 units, down 0.9 per cent from 2009, rise to 204,000 units in 2011 but fall 3 per cent to 197,000 units in 2012. Prices will continue their upward trend, hitting $342,100 this year, $356,500 in 2011 and $365,000 in 2012.
Ontario housing starts increased dramatically last spring before trailing off towards the end of the year, and are expected to reach 61,000 for 2010, a 21 per cent increase over 2009, but that total will be the second lowest since 1998. In 2011 builders will start 66,000 units, up 9 per cent, and starts will increase a further 7 per cent in 2012 to 70,700 units.
But starts will be below the pace of new household formation so a housing shortage will put pressure on resale home prices, providing an incentive for builders to start 80,000 units in 2013.
The vacancy rate for apartments will be flat in 2011 at 3.7 per cent, but will decline to 3 per cent in 2012. “High youth unemployment has meant more young people are living at home, or sharing accommodation, which has pushed the vacancy rate up,” Pastrick says.
Mortgage rates are predicted to increase slowly in 2011 from an average of 5.40 per cent in the first quarter to 6.50 per cent by the fourth quarter of 2012, as the Bank of Canada slowly increases its policy rate.
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Toronto real estate market forecast
The Toronto area real estate market will continue to do well in 2010 before retrenching significantly next year, CMHC says.
Sales of new homes in the Toronto area are expected to rise 30 per cent compared with 2009, while existing home sales should be up 2.5 per cent, according to a report released Tuesday by the Canada Mortgage and Housing Corp. "We have entered this year with significant amounts of momentum as a number of temporary factors have boosted sales and prices in recent months," CMHC economist Ted Tsiakopoulos said.
"But moving forward, the rate of appreciation will slow down as you have higher mortgage carrying costs, less pent-up demand and increasing supply pressures."
The market this year will be the flip side of last year, which saw the market flounder in the first half before rocketing upward in the second half, CMHC analyst Shaun Hildebrand said.
"This year will be a very good first half, followed by a slower second half. Right now, we are having exaggerated rates of price appreciation as supply is tight and interest rates are low," Hildebrand said.
The Bank of Canada left its key overnight rate unchanged at 0.25 per cent Tuesday, but adopted a more hawkish tone, suggesting that interest rates would go up sooner than later.
Meanwhile, housing starts and residential construction have trailed the existing home market, but low interest rates mean that single detached starts should do well in the first half of the year, CMHC said. As affordability becomes more of an issue, demand is expected to shift in the second half to condominium and row housing.
Toronto real estate defies reality
Toronto finds itself in a surprising situation: The economy stalled, but house prices didn't.
What happens if you had a recession and housing prices didn't really go down? That's the scenario Toronto could be in by the end of 2009, as economists scramble to revise this year's real estate market forecasts.
Toronto housing economist Will Dunning is forecasting that the average price of an existing home in the Greater Toronto Area will be $378,700 by the end of this year. His previous forecast was for prices to decline to $358,100, or about 5.6 per cent from 2008. That's in line with the estimates of about a 5 per cent decline from most major housing analysts.
"The forecast has been raised substantially," Dunning says. "For the past three months, resale activity has been much stronger than I had been anticipating."
A $378,700 price is spitting distance of the $379,347 average price recorded at the end of 2008. Dunning says this year's average price could surpass last year's.
2009 Real Estate Market Forecast
Royal LePage sees a correction but not a crash for the Canadian real estate market in 2009. The Average house price is forecast to fall 3.0% nationally and 4% in Toronto.
After experiencing a significant reset in 2008 - a reaction to continuous dire news surrounding the health of the global economy combined with a cooling from the previous years' fervid activity levels - Canada's resale real estate market should see only modest price and unit sales corrections take place across the country during 2009. Both national average house prices and the number of homes sold is expected to decline this year, according to the Royal LePage 2009 Market Survey Forecast released today.
Nationally, average house prices are forecast to dip by 3.0 per cent from last year to $295,000, while transactions are projected to fall to 416,000 (-3.5 %) unit sales in 2009. In spite of this cooling trend on a national level, price and activity gains are anticipated in some provinces.
Emotional reaction to recent economic and political instability did much to dampen consumer confidence during the latter part of 2008, causing a marked slowdown in house sales activity. However, as a more rational understanding of the issues gains ground, together with a wide range of announced corrective measures, consumer confidence is anticipated to recover, prompting real estate activity to pick up once again in the latter half of 2009. Further, Canada in 2009 enjoys a stronger economic foundation than most countries and that should temper the housing market correction. The combination of low inflation, reasonable employment levels and improving housing affordability, driven in part by low mortgage rates, are anticipated to stimulate demand in the coming months.
"While Canada's housing market is anticipated to continue to move through a period of adjustment over the next six months, we should expect modestly lower home prices, not a U.S.-style collapse, which was brought on by a structural failure of the entire American credit system," said Phil Soper, president and chief executive of Royal LePage Real Estate Services. "Most consumers are not aware that nationally, Canadian housing market activity peaked in 2007 and has been adjusting lower since. We are well into this inevitable cyclical correction."
Added Soper: "While a grey cloud hangs over some markets, the sky is not falling. In recent years, Canada has been a difficult place to be a purchaser of real estate, particularly for first-time buyers. When real estate markets correct, inventory levels rise, providing buyers choices instead of frustrating bidding wars. In 2009, appropriately-priced homes will still sell for fair value."
The housing market is expected to perform quite differently from region to region across the country. In many mid-sized cities where home prices remain below the national average, such as Regina and Winnipeg, prices are expected to increase moderately through 2009, as home ownership remains particularly affordable. The most significant price decreases are forecast for Canada's most expensive city, Vancouver, which has experienced above average price increases for most of the decade. The correction is a natural cyclical reaction to an extended period of high price appreciation. Vancouver's fundamentals, including growing population figures and the positive economic spinoffs expected from the 2010 Olympics, remain very positive.
Observed Soper: "For several years, Vancouver experienced aggressive price run-ups in response to overwhelming levels of demand - conditions, which eventually reached a tipping point. While buyers will be acquiring properties for less in 2009, it is important to note that prices are coming down from all-time record levels."
Secondary Ontario markets heavily populated by people working in the manufacturing sectors are also anticipated to experience greater than average declines in house prices and activity levels in 2009. In contrast, real estate in Montreal and Ottawa is poised to remain stable, with average house prices relatively flat through 2009.
After moving through a period of correction that started in 2007, well before other regions in the country, both Calgary and Edmonton's housing markets are anticipated to return to a growth state later in 2009, characterized by stable average house prices and increased unit sales. Despite slowdowns and delay with some major energy projects, Alberta's economy remains one of the strongest in Canada.
Looking east, Halifax's real estate market is expected to experience very modest price appreciation through 2009. After experiencing strong price increases over the last year and a half, the market has hit its capacity for absorbing rising prices and activity levels. The city's diversified array of industries is expected to bolster the economy and continue to create solid employment opportunities, stabilizing home values.
Canadians have been confused and justifiably skeptical of the efforts of the worlds' central banks and governments to combat the global economic crisis. There is broad belief, however, that Canada's financial house is in better shape than many peer countries, particularly the U.S. While the federal and most provincial governments have been slow to implement economic stimulus packages, they enjoy broad public support in principle. Together with the actions taken by the Bank of Canada, the positive impact on consumer confidence stemming from infrastructure spending announcements and other stimulus programs is expected to be significant.
Concluded Soper: "We believe that the Canadian economy will struggle early in 2009, but that conditions will progress continually throughout the year. Improving credit markets, the stimulative impact from a weaker Canadian dollar, together with the implementation of large fiscal stimulus initiatives, set the stage for a return to growth in the second half of 2009."
Economic Factors Impacting 2009 Forecast
Global Economic Woes
No country is impervious to the current economic woes being felt around the world. The poor performance of the equity markets and the constant stream of pessimistic economic news had a very negative impact on housing activity in Canada in 2008. Consumer confidence is expected to slowly recover during 2009 as the impact of the many corrective actions introduced and announced takes root.
Tempered, but continued growth in emerging economies, particularly China, India and Brazil, should mitigate the downside risk to Canadian commodity exporters.
Foreclosure Figures in Canada
Foreclosure rates in Canada are expected to increase, but remain very limited, especially when compared to the U.S. experience, where a broad structural failure of the credit system occurred. Canada's relatively insignificant subprime market, and in turn, the low number of Canadians contractually committed to very risky mortgages, should result in a foreclosure rate of insufficient volume to impact house prices or transaction activity.
Across the country, employment rates are expected to erode somewhat in 2009, but remain at long-term healthy levels. Some areas in Ontario, and to a lesser extent Quebec, that have high levels of manufacturing jobs, may experience greater than national average unemployment. Areas in Alberta tied to the energy sector may see short-term employment declines, but the province's tight overall labour market is expected to mitigate the downside.
The Bank of Canada's overnight target-lending rate, already at very low levels, is expected to be reduced again early in 2009. This should bode well for home buyers in 2009 as loosening credit spreads allow banks to offer more aggressively priced mortgages.