Contingent on who you ask, you will discover different viewpoints on when and how the Canadian housing sector will calm down from its latest meteoric rise. As specified by the story released this month in the “Globe and Mail,” TD Bank frankly predicts that by the second portion of 2011, housing values will drop 2.9 percent, but not until they experience a 9 percent increase in value over 2009 values. However economist Sal Guatieri of BMO Capital Markets is somewhat hopeful, telling “The Montreal Gazette” that the overvaluation that resulted in the housing bubble will only impact big cities, and should not bring about the kind of nationwide collapse expected in the US sector. One item they both appear to agree on, however, is that the Canadian housing sector is headed for a slowing trend — the debate is just how much and how soon.
As Guatieri pointed out, current values for average houses in Vancouver or Toronto — about $700,000 — is approaching 10 times the household income, but that in a normal market “a more normal price is about four or five times income”. Although TD Bank had originally forecast 1.6% gains in 2011, this type of real estate feverish inflation in the middle of economic recovery has in fact compromised the market, and they are already seeing the signs of cooling this year derived from the rise of new home starts and new listings. Even though condo projects in cities like Mississauga are climbing sales of Mississauga condominiums may start to diminish.
In their interview with “The Vancouver Sun,” TD conceded that their forecasts have been incorrect in the past, because their late 2009 estimate did not expect 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 take effect in July in Ontario and British Columbia certainly affected markets in those provinces. In anticipation of this July deadline, the Bank of Canada has already announced its intention to lift their overnight target rate by July to counterbalance the current record breaking low rate of 0.25 percent.The toughest affected housing sectors could be cottage regions, like Wasaga Beach real estate, as property owners may inundate the market with properties in advance the deadline.
As family incomes catch up with the level of inflation — an astounding 8 percent over the last 8 years — TD predicts that overvalued real estate values will carry on falling from 15 to 10 percent by the end of next year. The Canadian Real Estate Association concurs that they are witnessing MLS sales decline over the last 6 months, and expect this slowing to carry on and even Toronto MLS listings are seeing a drop. The sole question that is left is what impact the inflated prices will have on the real estate sector as a whole in the near term and going forward.
Gauthier describes his forecasts 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 favorable to potential buyers and a mild depreciation in home values”. But Guatieri is not convinced that values will actually drop, but rather will just slow down enough to adjust after the recent surges. One fact both Guatieri and Gauthier do envision on the horizon, though, is that irregardless of when it strikes, the calming shift will not last for good, and inside of 3 years the average real estate price in the country should come into equilibrium and come back to its fair market value.