Toronto Condo and Real Estate Blog

Housing starts reached 228,343 units in 2007, an increase of 0.4% from 227,395 in 2006, according to Canada Mortgage and Housing Corporation’s (CMHC) first quarter Housing Market Outlook, Canada Edition report. In 2008, residential construction will decline to about 211,700 units, given higher mortgage carrying costs. Nevertheless, Canada’s real estate market remains strong and 2008 will mark the seventh consecutive year in which housing starts exceed 200,000 units.

“Despite some global financial instability with regards to the U.S. housing market, Canada continues to experience robust employment levels, ongoing income gains and low mortgage rates,” said Bob Dugan, Chief Economist for CMHC. “This has strongly supported Canada’s housing markets. However, housing starts are expected to decrease in 2008 mainly due to recent increases in house prices, which will push mortgage carrying costs higher for home buyers.”

Existing home sales, as measured by the Multiple Listing Service (MLS), are poised to experience a very strong year with about 520,000 units in 2007, a 7.6% increase over 2006. In 2008 the level of MLS sales is expected to fall by 3.9% to 499,650 units, while 2009 will see an additional decrease to 488,300. Growth in the average MLS price has remained high at 10.6% in 2007, mainly because of continued strong price pressures in Canada’s western provinces. However, as most resale markets move toward more balanced conditions, growth in average MLS price is forecast to slow to 5.2% in 2008 and 3.8% in 2009.

The Ontario economy is expected to improve slightly during 2008 and this will help sustain housing demand across the province. New home construction activity will be moderate between now and the end of 2008. Housing starts are expected to move up from 68,123 units in 2007 to 69,150 units in 2008, while a more modest economy in 2009 will push starts down somewhat to 67,150 units. The average MLS price in Ontario will rise by 7.6% in 2007, while 2008 and 2009 should see increases of 6.2% and 2.9%, respectively.

As Canada’s national housing agency, Canada Mortgage and Housing Corporation (CMHC) draws on over 60 years of experience to help Canadians access a variety of quality, environmentally sustainable, and affordable homes - homes that will continue to create vibrant and healthy communities and cities across the country.

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Ontario’s economy will continue to struggle with a beleaguered manufacturing sector and the effects of Canada’s high dollar slowing growth to 1.4% in 2008, according to a provincial forecast released in January by RBC.

“The most serious downsides to Ontario’s economy will continue to stick for some time, yet we do see economic growth improving by a full percentage point in 2009,” said Craig Wright, senior vice-president and chief economist, RBC. “While a recession is not impossible, we believe that the province can avoid one despite a growing list of worries.”

A decline in new home construction since the 2003 peak will help to slow the province’s economy, with numbers expected to decrease from 68, 100 in 2007 to 66, 200 in 2008. Other factors weighing down the province’s economy, according to the report, include: an elevated Canadian dollar that is hammering away at manufacturers’ export competitiveness; negative exposure to weak U.S. housing and automotive markets; strong competition from Asian manufactured goods; and weak growth in machinery and equipment investment despite capital cheapening influences of a strong currency.

However, the report notes that forecasted currency depreciation, a modest weakening in commodity prices, and acceleration in U.S. growth later this year should help boost Ontario’s economy in 2008. Auto production should also grow in late 2008 and into 2009 as U.S. demand stabilizes, a new assembly plant swings into production, and new models are introduced. A reasonably vibrant services sector, strength in the tech sector, job growth and healthy consumer spending will also help bridge the gap.

“Modest fiscal stimulus announced in the fall 2007 provincial budget is welcome news, especially regarding taxes,” said Wright. “However, federal-provincial cooperation is still needed to achieve sales tax harmony. Ontario’s lack of tax competitiveness is a major concern as, unlike B.C., it still applies the provincial sales tax to capital goods.”

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The Canadian housing market in 2007 set a number of MLS sales records, and the re-sale housing market is expected to remain at near record sales levels in 2008, according to The Canadian Real Estate Association.

Annual residential MLS sales activity totaled 520,747 units in 2007, up 7.6% from 2006 levels. This was the largest annual sales growth since 2002, and the first time transactions via the MLS systems of real estate boards in Canada have surpassed 500,000 units sold in one year.

“The results in 2007 show the strength and the affordability of the Canadian residential market,” says Canadian Real Estate Association President Ann Bosley. “The statistics again show just how different the housing markets are in Canada and the United States. Canadian Realtors know that Canadian mortgage lenders correctly see that home prices will continue rising. We know there is still strong competition for mortgage business in Canada.”

Three key economic ingredients will keep Canada’s real estate market on a different track from the United States. One is consumer confidence, the second is employment, and third is affordable interest rates. The Bank of Canada cut interest rates on January 22nd because of weaker prospects for Canadian economic growth in 2008. “Those lower interest rates will also help temper the erosion in housing affordability due to additional home price increases,” Bosley added. The Bank of Canada is expected to cut its trend-setting rate again in March.

The Canadian Real Estate Association’s Chief Economist Gregory Klump says that the Canadian real estate market in 2008 will pull back from the breakneck pace set in 2007, but this is still forecast to be the second-busiest year on record in almost all provinces, with residential unit sales reaching an estimated 512,705 units.

Average prices for MLS home sales are expected to keep setting records in 2008, although prices will increase more slowly as the real estate market becomes more balanced. In most provinces, the market will nevertheless remain historically tight - with the tightest markets being in Saskatchewan and Manitoba. Nationwide, the average residential price is forecast to increase 5.5% to about $322,700.

According to the Canadian Real Estate Association’s Chief Economist, a larger supply of listings will be one of the balancing influences in 2008. New listings are forecast to rise in all provinces except Alberta, where they’re expected to retreat after spiking in late 2007.

“The challenge for the Canadian real estate market will be the extent to which employment and consumer confidence may be affected by a slowdown in the U.S. economy,” Ann Bosley adds.

“Slower job growth, not massive layoffs, are forecast for Canada in 2008,” the Canadian Real Estate Association’s Chief Economist Gregory Klump adds. “Consumer confidence may be sideswiped by stock market volatility, and reports that chances of a U.S. economic recession will put the brakes on the Canadian economy. With slower job growth, a low unemployment rate and the absence of widespread layoffs, consumer confidence will bounce back. The domestic economy and the housing market will weather the sub-prime fallout with the help of lower interest rates”.

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