High home sales hopes riding on low interest rates
February 9, 2010
Tony Wong
BUSINESS REPORTER
The Canadian Real Estate Association has revised its forecast for home sales upward this year, citing better economic conditions.
CREA forecasts 527,300 sales this year, up 13.3 per cent from 2009 levels. The previous forecast called for a 7 per cent increase.
The national average home price is forecast to rise 5.4 per cent in 2010 to a record $337,500.
But next year will start to see the impact of higher interest rates, with sales forecast to decline 7.1 per cent in 2011. That would put next year on par with levels reported in 2005 and 2006, according to the realtors' association.
Year 2011 is when Canada's realtors are expecting prices to slip 1.5 per cent.
"A downward trend in national sales activity combined with an increase in listings will result in a more balanced market," said CREA chief economist Gregory Klump.
The national perspective is different than the city's.
CREA's outlook for Toronto is that the real estate market largely will see prices flatline this year, with little appreciation.
Markets also will be cooler with less speculative supply coming onto the market from the new home sector, CREA said.
Housing starts in the Toronto area slipped slightly in January as highrise construction slowed at the beginning of the year.
Starts dropped 0.5 per cent to a seasonally adjusted and annualized rate of 20,700 units, according to figures released Monday by Canada Mortgage and Housing Corp.
"Total starts in Toronto were again weighed down by muted new highrise construction," said Shaun Hildebrand, CMHC's senior market analyst.
"The complexity and size of projects coming on stream combined with previously tight financing have resulted in longer preparation times."
Actual starts were down 6.5 per cent from a year earlier but CMHC reported it expects starts to pick up this year.
"Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely be continued to be held in check," said economist Klump.
Ontario Home Builders' president James Bazely said the new housing market is continuing to improve "but we certainly aren't out of the woods yet ... This is still a fragile recovery."
More restrictive mortgages and higher interest rates are the "last thing the industry needs now," Bazely said in a warning to policy-makers.
Nationally, housing starts across Canada rose 5.8 per cent to 186,300 annualized units according to the federal housing agency.
Canadian residential activity rose to its highest level since October of 2008. Despite the dip in the Toronto market, it was ahead of market consensus.
"The new homes market is slowly coming back to life and may finally be benefiting from the resurgence in overall Canadian housing market activity," said Millan Mulraine, an economics strategist with TD Securities.
An uptick in activity could be due to temporary factors such as building for the Olympics, cautions the bank. Starts were up 19.8 per cent in British Columbia alone.
"We believe that the report overstates the true strength of the recovery in residential construction and expect to see a modest pullback next month," said Mulraine.
Toronto Star