Spring anomaly?

By Helen Morris, Published: Thursday, May 21, 2009

Predicting trends in the housing market is a rather uncertain business during today's economic times. Canada Mortgage and Housing Corp. (CMHC) this week suggested that the total number of housing starts in the greater Toronto area would likely decline to 28,100 this year. This would represent a considerable drop from the heady days of 2008 when there were 44,810 starts.

The report also indicates that many potential buyers will remain cautiously on the sidelines and sales of existing homes are likely to drop to 60,000 units in 2009, down from 76,387 last year. But the report's authors noted that sales were expected to recover toward the end of the year, in line with the anticipated upturn in the fortunes of the wider economy.

"The key to bear in mind with all of this ... is that despite our forecast decreases in most indicators ... they are going to be very much in line with the historical 10-year average," says Dana Senagama, CMHC's senior market analyst for the GTA. "The levels will be nothing compared with what we saw back in the mid-1990s when we experienced a severe downturn in the housing market."

Ms. Senagama says that, over the past 10 years, average annual resales for the GTA was about 62,000, and that now we are coming off a housing boom that lasted nearly eight years.

"So, coming in at 60,000 this year and 63,000 next year, it's really still very much bang on."

CMHC also predicted that the average selling price of an existing home in the GTA will fall 5% to reach $360,000 this year.

However, despite the favourable conditionsfor buying a home in the GTA, potential purchasers will want to be certain of their job prospects before stepping into the housing market.

The CMHC report suggests that the level of employment in Toronto will decline by about 1.5% this year. But the report authors note that this drop comes on the heels of job growth lasting 14 years and averaging 3% annually.

"We've entered a very favourable time to buy, provided you have the job security and the income security and the collateral," says Ms. Senagama. "Mortgages are at historic lows ... on par with the levels we saw back in the early '50s. You can negotiate your price more and these will prove to be great incentives for first-time buyers."

The positive conditions for buyers are already having an impact on sales.
The Toronto Real Estate Board said this week that realtors in the GTA reported 4,561 transactions in the first half of May. This number was a 3% increase on the same period last year.

"Members reported a rise in buying activity this month," notes TREB president Maureen O'Neill in a release. "Many homebuyers who were undecided about purchasing a home during the winter months are now proceeding with confidence as a result of the GTA housing market's affordability."

TREB also noted that the average price of a sale on MLS was $399,811, down less than 0.5% compared with last year.

"More sales and fewer listings resulted in tighter market conditions, which pushed the average selling price back up to last year's level," notes Jason Mercer, TREB's senior manager of market analysis in a release.

"Look for new listings to increase as home owners react to the positive news surrounding home sales and prices."

Back to the predictions and taking the province as a whole, CMHC says the sluggish economy will decrease demand for housing this year but that the expected recovery in 2010 will see sales recover.

"Ontario housing starts have been running above demographic trends in recent years," notes Ted Tsiakopoulos, Ontario regional economist for CMHC. "This trend will be reversed in the next few years, largely due to a slowing Ontario economy."
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