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Tag Archives: fixed mortgage

The circle of real estate life

Construction of new homes and condos may slow later in the year if rate hikes and the HST put the brakes on sales

Helen Morris, National Post

This week, another bank raised fixed mortgage rates, fuelling speculation that at least some of the heat will be taken out of the Toronto housing market as the year progresses.

“We’re probably in the latter stages of the strength in the housing market that we’re going to see this year,” says Robert Kavcic at BMO Capital Markets Economics. “There are a number of factors at play: rising mortgage rates, the HST coming in Ontario, and you are probably going to see a lot more [resale] supply coming into the market as well.” (Indeed, the Canadian Real Estate Association on Thursday reported a record 20% increase in listings nationwide in March from that month’s previous record set in 2008.)

Over the next few months, these factors will likely reduce the number of people looking to buy a home and so reduce the upward pressure on prices.

And those factors would also impact the supply of new homes and condos down the road.

Trends in construction activity tend to lag sales and prices by about six months. “If sales start to fall off in, say, May or June, you’d expect to see construction activity trail off later in the year,” says Mr. Kavcic.

Already, housing starts for March in the Toronto metropolitan area fell 23% to a seasonally adjusted annual rate of 26,300 units compared with the previous month. However, the decline followed a hefty 66% month-on-month gain recorded by Canada Mortgage and Housing Corp. (CMHC) in February.

Last month’s 23% decline was overwhelmingly felt in the multiple-family sector, which took a 40.2% dive from the previous month, to hit 12,500 units. The seasonally adjusted annual rate for single-family starts, on the other hand, rose 4.5% month-on-month to reach 13,800.

“Housing starts in Toronto are showing two separate sub-plots,” says Shaun Hildebrand, CMHC’s senior market analyst for the GTA. “High-rise condominium starts have made little progress over the past several months, while low-rise singles and rows are making considerable headway.

“As housing in Toronto becomes less affordable, demand will shift towards condominiums and construction will again begin to favour high- rise projects.”

The raw data, which is not adjusted for seasonal fluctuations, show that in the first three months of this year, total housing starts fell 4% compared with the same period in 2009, which was itself very slow. Again, the multiple and single-family sectors showed significant divergence. In the first three months of 2010, there were 2,380 single-family starts, a 112.9% hike on the same period last year. The multi-unit sector recorded 3,289 starts from January to March 2010, a 31.3% decline from the first three months of last year.

At the national level, housing starts fell 1.5% month-over-month to an annualized rate of 197,300 units in March. As with the Toronto market, it was the 15.2% fall in the volatile multiple-family starts that led the overall decline. Single-family starts rose 6.9% to 97,700 units in March – the highest level since March 2006.

“We do expect that the level of overall housing activity should advance as buyers try to close deals ahead of [Monday’s] tightening of mortgage rules and the July introduction of the HST,” says Ian Pollick, portfolio strategist at TD Securities. “However, the timing mismatch between closing the transaction and the length it takes to complete a new residential structure might dissuade builders from continuing to ramp up production.”

The homes on which construction has just started will eventually make their way on to the market, where prices are – at least for now – still buoyant.

Statistics Canada’s New Housing Price Index for Toronto and Oshawa fell 0.7% in February compared with the previous month. However, prices of new homes rose 1% in February when compared to the same month last year.

“If you just ignore the month-over-month, new housing prices in Toronto are almost near record levels,” says Mr. Kavcic. “Housing in general is strong coming out of the recession; the HST is probably a factor, too. I think you’re seeing a lot of purchases pulled forward before the HST comes into effect. That’s probably propping up demand a little bit more than would normally be seen right now and that’s probably putting a little additional upward pressure on prices.”

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