CMHC Housing Market Outlook
Greater Toronto Area

excerpt from the CMHC Autumn 2011 Housing Market Outlook

Flat Sales and Higher Listings will Slow Price Growth

Read the full report here (pdf)

The market for existing homes will continue along its steady path in 2012. The biggest movers of ownership demand — interest rates and employment — are expected to see little change next year. Weakened financial market conditions and a slower profile for economic growth won’t provide any stimulus for the housing market, however the lasting need for low interest rates will alleviate pressures on affordability. Increased supply and slower growth in prices should also help keep the door open for would-be homebuyers.

All-in-all, resale market activity in 2012 will be largely unchanged from annual results tallied over the past few years.

In fact, excluding some volatility in 2007 and 2008, annual sales totals have remained within a tight range of between 85,000 and 90,000 since 2004. So it would appear that housing market activity in the GTA has settled into a sustainable pace. Particularly when considering that as a share of the stock of housing (which has continued to grow), sales are converging back to their longer-term average of roughly six per cent. A slowing in the turnover rate of existing housing refl ects less activity from first-time buyers in comparison to previous years. A good chunk of the pool of potential buyers from the past few years have already bought in advance of a couple rounds of mortgage policy changes as well as anticipated increases in borrowing costs. While we could see activity rise in early 2012 as a reaction to improved affordability and higher listings, expect the number of potential owners to see limited expansion with the creation of fewer full-time positions and slower immigration (see Local Economy section).

As sales activity normalizes, expect supply to do the same and move higher. New listings in the resale market have been unusually low this year, although some improvement has been made in recent months. More homes should come on the market as existing homeowners continue to take advantage of favourable selling conditions. By the second half of next year, market conditions are expected to be more balanced — less competition between buyers and more competition between sellers. This will result in slower growth for housing prices throughout 2012. There is a chance that continued economic and fi nancial market uncertainty may lead some homeowners to put off their decision to move. In any case, prices should still remain fairly flat as buyers feel less compelled to offer higher bids following a lengthy period of seller market conditions.

One particular area of the market that could experience relatively softer conditions in the face of broader concerns about the economy and world markets is the high end. The biggest ticket items within any category of goods are usually scaled back the most in these situations due to their highly discretionary nature. Worries at home may also postpone purchasing decisions from wealthy foreigners, whom anecdotally have been representing an increasing share of high-end home purchases in the GTA. With the share of homes sold for above a million dollars already moving lower in recent months, we can expect this trend to even out at best in the absence of a spurt of optimism next year.

Relatively affordable areas are likely to continue experiencing above-average growth next year as first-time buyers remain price-conscious. These include below-average priced areas within some sections of Scarborough, the north-west end of the City of Toronto, and Burlington — all of which have seen prices appreciate by more than 20 per cent over the past few years.

Market at a Glance

• Resale market activity will hold steady in 2012. Sales will remain close to previous years with a total of 88,500 transactions, while prices will remain fairly fl at with annual growth of one per cent.

• New home construction will stay elevated next year at 35,000 units on the strength of condominium apartment construction. New home sales will moderate to 33,500 units in 2012.

• Total employment will see little growth next year amidst a slowing global economy. The unemployment rate will remain above eight per cent and net migration will stay muted at 64,500.

Local Economy

The Fundamentals have Slowed

The fundamental engine of housing demand — employment and population growth — have decelerated and are expected to maintain a slower profi le next year. Heightened uncertainty regarding future business activity will lead business owners and senior managers to trim plans for new hiring. The labour market will maintain the impressive number of jobs recovered and created coming out of the recession, but will see little growth in 2012. The unemployment rate should hold steady at above eight per cent as fewer people look for work. Population trends available at the provincial level have indicated a signifi cant slowdown in net migration this year. While immigration levels will improve next year, they will remain below normal levels, which will help to prevent excess slack from building in the labour market. Earnings should therefore continue to grow by close to infl ation, helping to keep ownership and rental costs within an affordable range for households.

Ironically, some of the sectors that helped the local economy recover quickly from the recession will temper growth in employment next year. A levelling out in consumer spending and a continued shift towards lower government expenditures will weigh on job creation in the service sector — notably the retail trade and public administration fi elds. Hiring in the fi nance, insurance and real estate sector should also pull back as fi rsttime home buyers take a breather and companies linked to equity markets maintain a cautious outlook. On the production side, the recovery in manufacturing will slow in 2012 as U.S. consumption is restrained by elevated unemployment and continued weakness in housing markets. One apparent bright spot for employment in Toronto next year can be found in the construction industry. As more and more condo projects shift from the sales to construction phase, labour and trades will be in high demand.

Mortgage rate outlook

Recent announcements by the Bank of Canada have indicated that the Bank will be leaving the target overnight interest rate unchanged at 1.0 per cent for some time to come. The Bank has been noting that in light of slowing global economic momentum and heightened financial uncertainty, the need to withdraw monetary policy stimulus has diminished. The last increase in the overnight interest rate occurred on September 8, 2010 when the Bank of Canada raised it by 25 basis points. Mortgage rates, particularly short term mortgage rates and variable mortgage rates, are expected to remain at historically low levels.

According to CMHC’s base case scenario, posted mortgage rates will remain relatively flat until late 2012. For 2012, the one-year posted mortgage rate is expected to be in the 3.4 to 3.8 per cent range, while the five-year posted mortgage rate is forecast to be within 5.2 to 5.7 per cent.