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Tag Archives: canadian economy

Experts cautiously optimistic for housing sector in 2015

Expect rising land costs to keep driving shift from new houses to new condos

Bryan Tuckey – Toronto Star

Douglas Porter wanted to gauge the mood among the 300 people gathered to hear his economic forecast for 2015.

So BMO Financial Group’s chief economist took a straw poll at the BILD (Building Industry and Land Development Association) 2015 Outlook Breakfast in Vaughan, asking how many in the room considered themselves optimists, how many were cautious and how many were pessimists when it comes to the Canadian economy.

(Oddly, I was one of the few who lifted my hand as an optimist.)

He said his audience was very Canadian as he estimated 80% lifted their hand as cautious.

Comment: I find that hard to believe. If they are no optimistic, why are they building houses?

Porter was cautious too about about Canada’s economic outlook for 2015. He was joined by Dana Senagama — Canada Mortgage and Housing Corp.’s senior market analyst, Ontario Market Analysis Centre — as they addressed the builders, developers, renovators, engineers, realtors and others that make up BILD’s membership. Porter provided a global perspective and Senagama explained the local view. Both painted a mostly hopeful picture for the GTA and Canadian economies.

Toronto condo construction

Porter said that a typical year for growth in the global economy would be 3.5% to 3.75% — Canada has seen three years of below-average growth, including 2.5% to 3% in the past year.

Comment: Wait, so the average can be down to 3.5% globally – including runaway economies like China – and we were as high as 3% this year and this is bad? That is pretty damn close, especially with the economis cesspool that is the US right next door.

But he is optimistic that the rebounding American economy — experiencing its best job growth in eight years and more pent-up consumer demand in the housing sector — will help push the Canadian economy.

Interest rates in Canada are still low with some lenders offering five-year rates at less than 3%. Porter predicted a modest upward drift for interest rates. He added that despite what a lot of people may think, home prices on a national level are about where you would expect given today’s extremely low mortgage rates.

Comment: No kidding. Since buyers have a lot to with buying, and thus setting the price. Which is also dictated by how much they can borrow. So saying that mortgage rates influence house prices is kinda stating the obvious.

The average price of a home in Canada is 50% higher than a home in the U.S., but that gap will narrow in the next 10 years. He also said that we should expect a slowdown for Canadian housing but not a crash.

Comment: The average number of teeth in Canada is also 50% higher, with the average person’s weight 50% less. And with 100% less guns!

Senagama agreed that the fundamentals of the housing market are on solid ground.

Comment: I have been saying that for years!

Condos will continue to dominate the product in the GTA. She estimated that there would be between 17,000 to 18,000 condo housing starts for the GTA next year. That’s good news for first-time buyers who are entering the housing market by buying condo units, Senagama says.

I was interested to learn the average age of a first-time buyer in the GTA is 37, while the typical age group among first-timers is 35-44.

She made a point that BILD has told the public for years — that the rising cost of land is leading to higher-priced homes and fewer low-rise projects coming to market.

Comment: Exactly. Building a few houses on an empty parking lot downtown would result in $5,000,000 houses. Or more.

The average new single-detached home costs about $840,000, while new condos are averaging $430 per square foot.

For the past five years, condo completions averaged about 14,000 units, with household formation being the fundamental driver of new-home construction. Senagama said the average GTA number for household formations in the last GTA census was approximately 37,000 — that should slow down to about 34,000.

There has been enough demand that unabsorbed condo units are not a substantial factor in the region like they were during the recession in the early 1990s. Again, we’re not looking at a crash, but perhaps a slowdown for new housing.

I am grateful to both speakers for their insight and for shedding a little light on what to expect in 2015. I hope that there will be a few more optimists raising their hands at next year’s breakfast.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.

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