Contingent on who you ask, you will find varying opinions on when and how the Canadian housing market will cool down from its recent spectacular climb. For instance, TD Bank economist Pascal Gauthier plainly said in an interview with “Globe and Mail” this month that even though housing prices will continue to increase by 9 percent over the 2009 values until the middle of 2011, they will then unmistakably drop — possibly as low as 2.7 percent. But economist Sal Guatieri of BMO Capital Markets is somewhat hopeful, informing “The Montreal Gazette” that the overvaluation that caused the real estate bubble will just impact large cities, and should not bring about the kind of nationwide meltdown anticipated in the US market. One thing they both appear to agree on, however, is that the Canadian real estate sector is on course for a cooling trend — the debate is just how much and when.
As Guatieri draws attention to, today’s values for average houses in Vancouver or Toronto — about $700,000 — is coming close to 10 times the household income, but that in a stable market “a more normal price is about four or five times income”. Even though TD Bank had at first forecast 1.6% increases in 2011, this type of real estate feverish inflation in the midst of recession recovery has actually hurt the market, and they are already seeing the signs of cooling this year based on the rise of new home starts and new listings.
In their interview with “The Vancouver Sun,” TD conceded that their projections have been off in the past, because their late 2009 forecast did not anticipate the increase in first quarter sales for that year that was an unpredicted “move by buyers and sellers to pre-empt regulatory and interest-rate changes”. The looming harmonized sales tax due to come online in July in Ontario and British Columbia definitely affected markets in those provinces. The shift has influenced financing costs already, with the Bank of Canada expected to raise their overnight target rate in June or July from the record setting low of 0.25 percent.The hardest hit real estate sectors might be cottage regions, like Wasaga Beach real estate, as sellers may inundate the market with homes in advance the changes.
TD is of the belief that real estate prices are somewhat overvalued and that prices will continue in a downhill shift well into the next year due to family incomes that are trying to chase after the inflation rate. The Canadian Real Estate Association concurs that they are witnessing MLS sales fade over the past 6 months, and expect this decent to continue and even Toronto MLS listings are seeing a drop. But everyone can see signs that the entire housing sector has been acted on by the large proportion of inflated values in the cities — how far this influence will extend is the primary question.
Gauthier describes his projections are a result of the “stronger supply response,” and that the “market balance is now expected to be somewhat softer next year, consistent with market conditions more favourable to potential buyers and a mild depreciation in home values”. However Guatieri believes the impending slow down phase does not automatically mean that housing values will indeed drop, but predicts it as a slow adjustment following the recent surge. One thing both Guatieri and Gauthier do envision in the future, though, is that irregardless of when it hits, the calming trend will not last forever, and within 3 years the average home price in the country should find a balance and come back to its fair market prices.
Stefan Hyross researches the real estate sector and writes about Mississauga condominiums and various market elements. For more information about Toronto MLS listings or to research cottage regions like Wasaga Beach real estate please feel open to visit the website and inquire.
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