Toronto Real Estate Forecast 2007 - Resale Market
Resales Edging Lower
Sales under the Multiple Listing Service (MLS) will amount to 81,000 in 2007 – down 3.6% from 2006. Total sales will remain near record levels, but it is important to note that the sales cycle has matured. Over the next few years, Toronto real estate sales will dip below 80,000 and move closer to the longer term average. More moderate employment growth and increased home ownership costs are the key factors influencing maturing demand for existing homes.
Fewer First-Time Buyers
Pent-up demand for ownership housing, which developed during the period of below average economic growth in the early to mid-1990s, has largely been satisfied. First-time buyers accounted for a large proportion of this pent-up demand. High home prices and increased borrowing costs have pushed the average owner’s monthly payment (i.e. principal and interest) higher. Some households, especially those considering their first home purchase, will put their decision to purchase on hold.
The impact of rising ownership costs on first-time buyers is evident through the results of CMHC’s annual Consumer Intentions to Buy or Renovate Survey. In 2002, three-quarters of households intending to purchase a home were living in rental accommodation, with the majority likely being first-time buyers. Since the beginning of the new millennium, the situation has changed. Only 50% of households intending to purchase a home in 2006 were living in rental housing.
Fewer first-time buyer intentions indicate that a smaller share of new households forming in the Toronto CMA will live, at least initially, in ownership housing. The spread between the average owner’s monthly principal and interest payment and the average monthly rent has increased substantially over the past two years. Going forward, more households will choose to rent before making the move to home ownership.
More Supply, Lower Price Growth
While Toronto MLS sales have reached a plateau and will decline over the next year, the number of new listings will continue to grow in 2007. Home owners will list their homes in greater numbers in order to take occupancy of completed new homes or to trade up on the strength of strong equity gains experienced since the late 1990s. More listings relative to sales will result in more choice for buyers.
The sales-to-new-listings ratio measures the balance between demand and supply. Generally speaking, a ratio of above 55 to 60% for a sustained period of time points to seller’s real estate market conditions. A seller’s market is characterized by price growth well above the rate of inflation, with multiple bids on homes becoming more common. A ratio below 55% is consistent with more balanced market conditions.
From 2003 onward, growth in Toronto listings has outstripped sales. The sales-to-new-listings ratio has edged below 55%, indicating more balanced real estate market conditions. The downward trend will continue in 2007.
Annual price growth will start to moderate and move closer to inflation. The average MLS price will increase 3.7% to $365,000 next year. This growth rate will be down from 4.7% in 2006.
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