TD sees housing correction in 2011
Tony Wong – Toronto Star
The Toronto Dominion Bank expects the Canadian housing market to experience a “modest” price correction next year.
Existing home prices nationally should fall by 2.7% in 2011 because of weaker than expected economic conditions, says the bank. This is a reversal of the bank’s earlier forecast that called for a 1.6% gain in housing prices next year.
Comment: Remember, that is national, not local. Sure, prices might drop in Winnipeg or Halifax, but that is meaningless for us in Toronto.
“A combination of factors suggests a weaker handoff to 2011 than previously expected,” said economist Pascal Gauthier in a report Wednesday. “While we anticipated sales and prices to be strong in the first half and cool in the second half, we now expect this contrast between the two halves will be sharper.”
One crucial reason is that many more listings are appearing on the market than previously anticipated, as well as new supply in the form of strong housing starts, said the bank. More supply means that buyers will have much more product to choose from, putting a chill on pricing. Interest rates are also expected to rise more quickly than expected, putting a crimp in affordability.
TD’s forecast follows other negative reports by analysts who see the market as being overheated. Some analysts have forecast that the market is due for a 20% correction in prices after a rush in the first quarter to purchase homes ahead of implementation of the harmonized sales tax. New mortgage regulations and higher interest rates have also pulled sales forward that would have normally taken place later in the year, analysts say.
“Temporary factors that have boosted home buying are largely played out,” said housing economist Will Dunning. “Right about now we could be entering a softening phase, where activity is determined mainly by economic fundamentals .”
So far, any slowdown hasn’t had a major impact on the Toronto real estate market, although the emergence of greater supply suggests that the market is already becoming more balanced.
The spring real estate market continued to show strength, with new records set for both sales and listings, according to figures released by the Toronto Real Estate Board, also on Wednesday.
There were 10,898 sales in April, a 34% increase over last year and a record for the month.
However, there were also 20,683 new listings, representing a 59% increase over last year.
“Listings grew as home owners reacted to strong sales and price growth,” said Toronto Real Estate Board president Tom Lebour.
The average price was $437,600, up 13% from the average of $385,641 recorded a year earlier.
As average prices increase, condominiums remain the only option for some buyers who are priced out of the market. The first quarter of the year saw record sales for new condos in the Toronto real estate market according to research firm Urbanation this week.
But the attraction may be waning, at least for investors.
In a separate TD national poll released Wednesday, only 32% of respondents said market conditions were good for buying a condo, compared with 42% in 2009.
“The results may reflect a growing perception among investors that the profitability of investment condo ownership will be reduced due to higher Toronto condo prices, expected interest rate hikes and imminent increases in carrying costs,” said the bank.
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