Housing Market Outlook – CMHC Report Released Fall 2010
Market at a Glance
- MLS® sales and selling prices in the GTA will stabilize and gradually increase over the course of next year. In comparison to 2010, the totals for 2011 will be slightly lower due to very strong activity in the first part of this year. MLS sales will reach 81,500, while the average selling price for the year will be approximately $428,000.
- New homes sales will total 26,500 units in 2011, with high rise projects accounting for the majority share of transactions (55 per cent). Total housing starts will remain at virtually the same level as 2010 (approximately 30,000) as strong apartment starts offset a decline in single detached construction.
- The unemployment rate in Toronto will edge lower but remain elevated next year. As a result, incomes will continue to grow below the rate of inflation.
Resale Market - Less excitement in store for 2011
The Greater Toronto Area’s resale market is expected to normalize in 2011. After an unprecedented level of volatility experienced over the past couple of years, sales will settle into a range reminiscent of the 2003-2006 period — decent volumes without dramatic movements.
One change on the horizon is an absence of the seller’s market conditions the GTA has been accustomed to for much of the past decade. Buyers can sigh in relief as prices will see very little movement from today’s levels. While developments in the housing market will likely attract fewer headlines in the coming year, take that as a sign that we have transitioned towards a more sustainable level of activity reflective of the current economic environment.
In fact, the market already appears to be settling into its comfort zone. Sales are currently in the low end of the 75,000 to 85,000 annualized range expected for the rest of this year and throughout 2011, which largely reflects a rebalancing from record levels set in the early part of 2010.
Homeownership demand is expected to gain momentum in the second half of next year as the GTA economy is now starting to bring full-time employment beyond the pre-recession peak (see Local Economy section).
Continued low interest rates will keep households interested in buying, but won’t lead sales to new highs. Prices in the resale market are no longer at simulative levels after growing faster than incomes over the past couple years. This will impact sales coming from first-time buyers, who typically have below-average incomes and savings.
While overall sales levels and price growth will be lower than in the preceding couple of years, opportunities for growth will continue to present themselves in 2011. Next year, the share of the population in their prime income earning years (45-54) will peak — meaning the reduction in first-time buyers should be at least partially offset by greater sales from move-up buyers. As a result, above-average priced areas of the GTA should continue to attract interest in 2011.
The empty-nester and retiree population is also expanding quickly, as is the trend towards downsizing.
Results from CMHC’s Renovation and Home Purchase Report indicate that 40 per cent of home purchasers aged 65 plus bought a condo. A large number of newly completed units hitting the market will present buyers with ample choice and more flexible prices. Research conducted by CMHC reveals that one-third of the 20,000 units registered in 2009 and the first half of 2010 were listed for sale during the period. Prices for these recently finished suites are comparable to prices at pre-construction sales centers, allowing buyers with more options to buy “new” without the long construction wait.
While first-time buyers will likely look more towards the condo market next year, they also tend to broaden their geographic scope when ownership becomes less affordable. Sales in areas close to the city yet offering prices 10-20% below the GTA average, such as Pickering, Ajax, Whitby, northern Mississauga and Brampton, are expected to perform relatively better next year.
Local Economy - Slow road ahead
The relatively quick turnaround for employment will be a stabilizing factor for housing sales and construction in 2011. However, digging beneath the headline job recovery reveals a Toronto labour market not yet ready to bring housing activity back near peak levels. Since developments in the labour market typically impact the housing market six-to-nine months down the road, it is important to understand current developments and the near-term outlook for the employment situation to set expectations for the market in 2011.
Although employment has now returned to its pre-recession level (Q3 2008), the number of people looking for work has shown unabated growth over the past two years. As a result, unemployment remains high and only a slight decline in the jobless rate is expected next year — which will stay well above the average for the past decade.
The labor force will continue to expand as immigrants flow into the area and net migration rises, while the sectors that have provided pillars of strength for job creation are expected to scale back hiring next year. A slower housing market will reduce hiring in the real estate services and construction industry, and a downgraded outlook for global demand will keep corporate profits below peak levels, limiting job openings in the manufacturing and financial sectors.
Furthermore, the reduced share of full-time jobs should show little improvement next year as employers continue to exhibit caution by hiring more part-time workers and adding hours back to existing full-time positions. As a result, wage growth will remain below the rate of inflation. All told, job creation over the next six months will bring the level of employment above previous highs.
However, growth will be tepid and considerable slack will remain in the labour market, translating into modest growth in housing sales in the second half of next year.
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