Housing prices are forecast to slow down in 2007
Reduced affordability and weaker employment growth mean that resale home prices in the Toronto area are forecast to appreciate by only 1.8% in 2007, a leading economist says.That would be the lowest figure in a decade, and below the 2% target rate for inflation set by the Bank of Canada.
The 1.8% figure is far below the stellar gains made by homeowners over the last several years, and would mean housing prices would actually fall in real terms (after subtracting inflation) if inflation stayed at the Bank of Canada target rate.
In comparison, the average house price in the Toronto area rose by 34% over the period from 2001 to 2005, an increase of 7.5% a year.
“Interest rate increases that have occurred over the past year combined with higher house prices have resulted in reduced affordability,” said Dunning in his report.
The slower price growth will drag on into 2008 and 2009, when resale home prices will increase by only 1.7% and 1.9%, according to the forecast.
Dunning’s numbers differ sharply from ReMax Ontario Atlantic Canada, the country’s largest residential realty firm. ReMax released a far more optimistic report last month forecasting that the resale market will appreciate next year by 5%.
Toronto’s more mature housing market, which has had the heftiest increases over the past decade, is not expected to appreciate as quickly as some other areas in the province.
A Canada Mortgage and Housing Corp. forecast released yesterday for Ontario estimates that home prices will rise by 3.1% in 2007, compared to 5.9% in 2006.
“Ontario economic growth and job creation will continue to lag behind Canadian averages thanks to high energy prices, a high dollar and slower economic growth in the U.S.”
Dunning, an independent analyst and a former Canada Mortgage and Housing Corp. economist, estimates that the average price of a Toronto area home will hit $351,734 by the end of this year and $358,081 by the end of 2007. ReMax is forecasting that home prices will be $371,000 by the end of 2007.
Dunning also warned about a possible correction in the condominium market.
“It is clear to me that investors are inflating demand. Condo completions are now rising, and there will be a sustained high level of deliveries for the next three years,” he said. “I expect that condo rents will start to fall late this year with the possibility of price weakness to follow.”
Dunning said sales of homes are still healthy and about 15% higher than what historical patterns would suggest.
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