CMHC Toronto report (Fall 2008)
Highlights from the report:
Existing Home
Market & Economic Trends
(pages 3-6)
Existing Home Sales Off the Peak
Over the next two years, the
number of home sales under the MLS® system in the GTA will trend
lower off the 2007 record high. Sales
will moderate due to softer economic
conditions domestically and
elevated home prices. In 2008, home
sales will be down to 82,000 units,
moderating by 14 percent from a
year ago. In 2009, sales will edge
lower by 8.5 per cent to 75,000.
Slower growth in jobs and earnings
will especially impact would-be first-time
buyers, who are generally more
sensitive to changes in economic
conditions and who face a wider gap
between ownership and rental costs.
In addition to the labour market
situation, a long phase of home price
growth well above the general rate
of inflation and household incomes
has ultimately moderated demand
for homeownership. Slower price
growth over the next year will help
this situation somewhat, but on net
will still result in an increased
number of buyers putting their
home buying decision on hold.
While home sales will be off record
levels, continued steady net-migration
and low borrowing rates will
keep home buying activity in the
GTA in line with the average over
the past ten years.
More Supply, Moderate
Price Growth
New listings will continue to grow to
reach a record-high level in 2008.
The trend will flatten out in 2009. At
a maturing stage of the housing cycle,
when the rate of price increase
usually slows, an increasing number
of homeowners list their homes for
sale to realize the equity gains accumulated
during the expansion phase
of the price cycle. The trend in
listings growth will eventually slow
and then change direction, however,
as fewer home owners are able to
sell their homes for the anticipated
values for their properties. This will
begin to happen toward the end of
2009.
The relationship between sales and
new listings speaks to the level of
choice in the existing home market. With sales lower this year and the
level of new listings continuing to
grow, buyers have had more homes
to choose from. This increased
choice has meant that offers below
the asking price have been more
common. As a result, annual price
growth in the GTA has moderated.
In 2009, the level of new listings is
expected to level off and start
declining toward the end of the year.
While the sales-to-new listings ratio will continue to decline, it will do so
at a diminishing rate. The resale
market will remain balanced, with
prices growing in line with inflation.
The average home price in 2008 will
be up 2.6 per cent to $387,000. By
the end of 2009, the average price of
home will reach $394,000 – up 1.8
per cent. While positive, these
forecast growth rates are much
more moderate than what was
experienced on average over the
past ten years, including the seven
per cent growth rate experienced in
2007.
Not all housing types will experience
the same moderation in price
growth over the next year. Condominium
apartments in the central
Toronto area are a good example of
this. The central Toronto area remains
a tighter market than the
region as a whole. While condo
buyers in the central area have
experienced more choice this year,
seller’s market conditions still persist.
As choice continues to increase in
2009, price growth will moderate, but will still remain above the average
for the GTA as a whole.
The First Time Buyers
Niche Gets Smaller
Over the long term, first-time buyers
will remain the most important
factor driving sustained demand for
home ownership in the GTA. As
immigration into Canada and the
GTA increases over the next two
decades, many of these households
will be pointed in very short order
towards the purchase of a new
home. In the short-term, however,
the level of first-time buying activity
is subject to the economic cycle.
The number of households purchasing
their first home will be trending
lower in 2009. Softer labour market
conditions along with elevated home
prices will affect the ability of some
first-time buyers to make a home
purchase.
Based on CMHC’s Renovation and
Home Purchase Survey, the percentage of intended home purchases
accounted for by first-time buyers
declined to 40 per cent for 2008
compared to 47 per cent in 2007.
This share will decline further in
2009.
Economic Trends:
Toronto Will Continue to
Create Jobs
Employers in the GTA have persevered
in 2008. The rate of job
growth will be 1.8 per cent in 2008
– above the average for Ontario. In
2009, job growth will remain positive,
but the rate of growth will
moderate to one per cent. Job
growth will come from the service
sector.
As labour market conditions in the
GTA remain tight through the end of
2009, wages and salaries will continue
to grow slightly above the rate
of inflation. With the unemployment
rate hovering around seven per cent,
many employers in the service
sector will be offering wages above
the rate of inflation.
Mortgage Rates
Mortgage rates are expected to be
relatively stable throughout the last
quarter of this year, remaining within
25-50 basis points of their current
levels. Posted mortgage rates will
decrease slightly in the first half of
2009 as the cost of credit to financial
institutions eases. Rising bond
yields, however, will nudge mortgage
rates marginally higher in the latter
half 2009. For the last quarter of
2008 and in 2009, the one year
posted mortgage rate will be in the
6.00-6.75 per cent range, while
three and five year posted mortgage
rates are forecast to be in the 6.50-
7.25 per cent range.
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