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Tag Archives: economics

Housing market gets sunnier outlook

Tony Wong and Allison Cross – Toronto Star

Like many Toronto-based realtors, Rashida Dhalla had expected a quiet January.

“That’s the time I normally book off for vacation and do paperwork,” said the ReMax agent.

So when she listed a home under power of sale for $233,000 last month, she didn’t expect much activity, especially given the healthy dump of snow in the city.

And there was another thing: The property was a dog. No showings were allowed inside due to “potential mould and safety reasons.”

Instead, she received 49 offers on the house. It sold for $355,000, or 152% of the listing price.

“It’s just about impossible to predict this market,” says Dhalla. “Just when you think it might be slowing down, it starts back up again.”

The market was supposed to be much slower this year. But on Tuesday, the Canadian Real Estate Association significantly upgraded its housing forecast, citing greater consumer confidence and an improved economic outlook.

Its previous forecast called for a 0.8% drop in prices this year.

The CREA, which represents realtors, predicts average home prices nationally will rise by 1.3% in 2011 to $343,300, and another 1.3% in 2012 to $347,900.

That’s not what it said in November, after it had downgraded its forecasts four times in a row. The previous prediction of a 0.8% drop in prices would have made 2011 the first time after 15 years that home prices went into negative territory.

Now it says the winning streak will continue. But not everyone agrees. Trying to read the market has been difficult at best for economists, who seem to be chasing a moving target. Forecasts have been so divergent that consumers might be forgiven if they think some analysts are not even looking at the same country.

The CREA forecast comes on the heels of a controversial report by Capital Economics last week that said Canadian home prices were 25% overvalued, and due for a fall over the next several years.

Others say the market is due for a downward correction of anywhere from 5% to 25%.

But the Toronto Real Estate Board is even more bullish than the CREA for 2011, forecasting price increases of anywhere from 3% to 5%.

Other economists say prices in Toronto are likely to remain flat this year. One reason, they argue, is that there is a greater supply of new housing stock coming on the market, which should help temper price increases.

Another reason might be higher interest rates due in the second half of the year, which will crimp affordability.

Meanwhile, the Royal Bank announced Tuesday it is increasing some of its fixed-rate mortgages by as much as 0.25%age points.

Canada’s biggest bank was following in the footsteps of CIBC and TD Canada Trust, which announced their own interest rate increases on Monday.

RBC’s five-year fixed-rate mortgage increased by 0.25% to 5.44%. The bank increased its one-year fixed-rate mortgage 0.15% to 3.5%.

The new rates come into effect on Wednesday.

“A quarter-point jump in the rates does have a bit of an effect,” said Jim Rawson, a Toronto-based regional manger for Invis, a mortgage brokerage firm. “Say on a $250,000 mortgage, you’re probably talking about a $34-a-month difference.”

The other lever that may have a damping effect on the market is an increase in the supply of homes.

Toronto housing starts in January were up by a solid 37% compared with December in seasonally adjusted numbers, the Canada Mortgage and Housing Corporation said in a report released Tuesday. On an unadjusted basis, starts were up 39% in January compared with a year earlier. A home is considered “started” when the concrete foundations are poured.

ReMax is forecasting that the first quarter of the year will show slightly strong sales in Toronto, as tighter listings prevail and buyers try to beat stricter mortgage regulations.

In March, new rules will shorten amortization periods on government-backed mortgages to 30 years from 35.

The CREA also expects second-quarter sales to dip as a result, before they pick up steam in the second half of the year.

Condominiums will remain popular with buyers, and as the economy improves, so will luxury property sales priced above $1.5 million, ReMax forecasts. Properties priced between $400,000 and $900,000 in Toronto’s central core are forecast to be in most demand.

But everyone agrees the Canadian housing market, despite a recession and global financial uncertainty, has had a remarkable run.

Residential real estate in the Greater Toronto Area posted one of the “healthiest decades on record” from 2000 to 2010, according to a report released Tuesday by ReMax Canada.

Over an 11-year period, seller’s market conditions dominated.

The average price of a home increased to $431,463 at the end of 2010, from $243,255 in 2000. That works out to an annual compounded return of 5.35% before inflation.

Nationally, the average annual return was 6.82%, so the Toronto market actually underperformed compared with the country as a whole.

Contact the Jeffrey Team for more information – 416-388-1960

Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.