Homebuyers remain confident in the GTA’s housing market
By Sam R on Jan 26, 2016
As part of its new (and destined to be annual) report and outlook, the Toronto Real Estate Board has joined the prognosticators in predicting what 2016 will bring for the new housing market.
Among its predictions are continued strong sales in the GTA, with prices rising 5% to 7% year-over-year to an average of $655,000 to $665,000, representing a continuing sellers’ market for the area. Physics tells us that what goes up must come down, but we may not see much coming down in 2016.
Condos will continue to account for the majority of sales to first-time buyers, who are more abundant in the City of Toronto than in surrounding regions, by a margin of 43% to 56% compared to existing homeowners. It can be chalked up, of course, to the popularity of condominiums in the city.
According to Ipsos research undertaken in November 2015, 12% of households in the GTA said they were “very likely” to purchase a home in the next year, which would indicate confidence in the overall stability of market conditions; 60% of those who self-reported as “very likely” said they would be looking primarily at resales, while the remainder would be shopping for new homes, which they found to be consistent in the city and in the surrounding areas. While detached homes were most popular overall, condos were most attractive to younger and older (downsizing) householders.
Among the favourable market conditions that support the Ipsos research is the unemployment rate in the GTA, which at 7% was down a full point year-over-year; average weekly earnings, they say, consistently rose above the rate of inflation. The diversity of the area’s economy is likely to help us outperform the Canadian economy as a whole, and the decline in the Canadian dollar versus the American dollar could actually be a good thing for area exports.
Low borrowing costs, arguably the most compelling incentive for home purchases in the last few years, is unlikely to change substantially in 2016, with the Bank of Canada not predicted to increase its Target for the Overnight Lending Rate this year, although rates are expected to edge up after that.
Predicting the housing market is a bit like herding cats of course — the data is substantial, but much of it can’t easily be controlled. Consumer confidence can be a cycle of self-fulfilling prophecy. People believe the market will do well, and so they invest in it and it does. It’s when confidence falters that the tide can turn.
While noting that recent changes to lending laws are unlikely to have a dramatic effect on most buyers (as noted in my last column), with real estate such an important pillar of our economy, it’s important that it remain within reach for average buyers. Affordability for many comes down to borrowing options, with more than 80% of buyers expected to need a mortgage to purchase their homes. All of which leads to some rather cagey language that doesn’t quite amount to a prediction:
“Moving forward, all levels of government should continue to bring forth position home ownership programs and initiatives [such as the federal RRSP home buyers’ plan and the first-time buyers’ tax credit). At the same time, however, government should be careful when implementing policies, to ensure that unintended consequences like market distortions are kept to a minimum.” It’s a bit damned-if-you-do and damned-if-you-don’t, but gives me another reason to be glad I don’t work for the government.
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Toronto’s number stayed constant from 1971 to 2001 according to Cox, where we’ve since seen house prices rise by 70% relative to income. Vancouver’s number has jumped from 5.3 a dozen years ago to 10.8 this year.
