Sales of existing homes will hit six digits for the first time by the end of this year, creating a new record. But 2011 will look “quite different” as the market ratchets down, says a report by the Canada Mortgage and Housing Corporation released Wednesday. “The era of rock bottom mortgage rates is coming to an end and the red hot Greater Toronto Area housing market will begin to lose its steam,” said Shaun Hildebrand, senior market analyst for the CMHC.
The CMHC is forecasting that sales will pass the 100,000 mark for the first time to 101,000 by the end of 2010, while average prices will also increase to a record $444,000. The peak of the market was in 2007 when sales hit 95,000.
However, the federal housing agency is also warning that prices “could come down” sometime in late 2010 or 2011. But they are saying any declines will be minimal or short lived.
The CMHC expects the upward streak of price appreciation to continue into 2011 resulting in 16 consecutive years of increases. They are forecasting that prices will increase slightly by 1.7 per cent at the end of 2011.
The CMHC report is at odds with some other analysts including economist David Rosenberg who has said national prices are overvalued by as much as 30 per cent. The TD Bank recently revised their forecast to say that prices nationally will come down by 2.7 per cent instead of increasing next year. Their previous forecast was for a 1.6 per cent increase.
“There is a question of whether the bidding wars in Toronto have caused prices to overshoot,” said Hildebrand. “There is also the question of whether buyers will respond more negatively than expected to higher interest rates, but we think prices will likely hold.”
The CMHC says prices will likely flat line after 2011 as affordability becomes an issue.
“Five year mortgage rates will be a full percentage point higher by the end of the year. Combining higher rates with the new reality of average prices well above $400,000 will make the transition to homeownership more expensive,” said Hildebrand. “The erosion of affordability will cause delay for many first time buyers.”
For now, the market is showing few signs of a slow down, although more supply is evident.
In a separate report released by the Toronto Real Estate Board on Wednesday, existing home sales in the Toronto area market were up by 7 per cent in the first two weeks of May compared with the same time last year.
The board reported that 4,887 sales occurred through the Multiple Listing Service.
The average price for May mid month transactions was $448,641, up by 12 per cent compared with $399,811 last year.
One encouraging sign for buyers is that new listings are up by 48 per cent.
“The total number of homes currently listed in the GTA is now within a more normal range. As buyers benefit from more choice in the second half of 2010, average selling prices will grow at a slower pace,” said Jason Mercer, the board’s senior manager of market analysis.
The most fragile sector of the Toronto market continues to be high rise development, where the CMHC expects 17,000 condos will be completed in the Greater Toronto Area this year, with another 16,000 completed next year.
The CMHC expects 10,000 of these condominiums, purchased by investors will be placed back on the market over the next two years.
“The added supply will lead to softer price growth for high rise units relative to low rise homes,” said Hildebrand. “With fewer buyers competing for more homes, bidding wars will become less common and prices will face little upward pressure.”
Some mitigating factors in the Toronto economy include stronger income and job growth and higher net migration which will help to keep the market stable, said the CMHC.
Employment is expected to rise by 1.5 per cent in 2010 and wages by 2.5 per cent.
“These are pretty big numbers for the first year out of recession,” said Hildebrand.