Toronto real estate market 'the hottest:' BMO
"Toronto “is starting to stand out as the hottest real estate market right
now,” following the release of December sales figures, BMO Nesbitt Burns
economist Robert Kavcic says.
However, that may be somewhat of a booby prize, as the Canadian market, following a 13-year boom, is cooling overall – and Toronto is expected to follow suit, he added."
A day after RBC put out a report saying that Toronto’s condo market is not in a bubble, Capital Economics has come out with its own report saying that Canadian housing, including Toronto, is most certainly in a bubble.
David Madani, economist with Capital Economics, said on Wednesday that Canada’s housing market is currently experiencing what appears to be a soft landing, but is, in fact, a bubble in the process of bursting.
“There is always a stand-off period at the end of a housing bubble, when prospective buyers refuse to meet the price of sellers, who refuse to drop the asking price,” he said in a note. “Eventually it begins to dawn on sellers that the market has shifted and, as they become more desperate, they eventually agree to lower their asking price. But until that happens, any stagnation in prices can be misinterpreted as a successful soft landing."
Mr. Madani said that he expects housing prices in Canada to crash 25% over the next couple of years. He originally made that forecast in June of 2011 and reaffirmed it Wednesday.
His update follows
a report from the Royal Bank of Canada, the country’s largest mortgage lender, that said that Toronto’s red hot real estate market is not a bubble.
In that report, RBC’s senior economist Robert Hogue said that demand in Toronto is in line with supply, dismissing claims that a condo bubble has emerged in the city.
A flurry of speculation has emerged about the fate of Canada’s housing market following changes to mortgage lending rules recently. Last month, Finance Minister Jim Flaherty changed the maximum amortization period for a mortgage from 30 years to 25 years. Those changes, combined with the prospect of looming interest rate hikes from the Bank of Canada, have raised questions over the effects they will have on Canada’s housing market.
Mr. Madani said that the changes will affect first-time home buyers the most, who make up 50% of new home sales and a quarter of resales.
Housing prices typically respond to changes in the market with a lag of five to nine months, according to Mr. Madani. He points out that home sales have already seen material declines, down 4% over the last two months.
Accordingly, we expect substantial declines in house prices over the next year or two.”The board said buyers were held back by a shortage of listings, while tight market conditions kept upward pressure on selling prices.
The overall residential benchmark price, as measured by the MLSLink Housing Price Index, has also dropped by 1.5 per cent since June.
Earlier this week, TD senior economist Jacques Marcil predicted both B.C. and Ontario could face challenging housing markets over the next two years.
Mr. Kavcic said the ratio of sales to new listings in Toronto and throughout Ontario “is pretty much in line with historical norms,” but noted that the number of starts for new multiple-unit dwellings (largely condos) in Ontario over the past 12 months had outpaced single family homes by a factor of 1.5 to 1, up from a ratio of close to 1 to 1 over the past decade and “pretty well the largest discrepancy we’ve seen in a long time.”
As a result, “to the extent where there is downward pressure on prices, the condo market is more at risk” in Toronto, he said.
Merrill Lynch warned last month that housing prices could correct by as much as 10 per cent in the next two years in Canada because of weakness in the economy, expressing particular concern about Toronto’s condo market. The Bank of Canada also warned the Toronto market looks overbuilt and could see prices drop.
source:
However, that may be somewhat of a booby prize, as the Canadian market, following a 13-year boom, is cooling overall – and Toronto is expected to follow suit, he added."
A day after RBC put out a report saying that Toronto’s condo market is not in a bubble, Capital Economics has come out with its own report saying that Canadian housing, including Toronto, is most certainly in a bubble.
David Madani, economist with Capital Economics, said on Wednesday that Canada’s housing market is currently experiencing what appears to be a soft landing, but is, in fact, a bubble in the process of bursting.
“There is always a stand-off period at the end of a housing bubble, when prospective buyers refuse to meet the price of sellers, who refuse to drop the asking price,” he said in a note. “Eventually it begins to dawn on sellers that the market has shifted and, as they become more desperate, they eventually agree to lower their asking price. But until that happens, any stagnation in prices can be misinterpreted as a successful soft landing."
His update follows
a report from the Royal Bank of Canada, the country’s largest mortgage lender, that said that Toronto’s red hot real estate market is not a bubble.
In that report, RBC’s senior economist Robert Hogue said that demand in Toronto is in line with supply, dismissing claims that a condo bubble has emerged in the city.
source:onathon Rivait/National Post
Mr. Madani said that the changes will affect first-time home buyers the most, who make up 50% of new home sales and a quarter of resales.
Housing prices typically respond to changes in the market with a lag of five to nine months, according to Mr. Madani. He points out that home sales have already seen material declines, down 4% over the last two months.
Accordingly, we expect substantial declines in house prices over the next year or two.”The board said buyers were held back by a shortage of listings, while tight market conditions kept upward pressure on selling prices.
The overall residential benchmark price, as measured by the MLSLink Housing Price Index, has also dropped by 1.5 per cent since June.
Earlier this week, TD senior economist Jacques Marcil predicted both B.C. and Ontario could face challenging housing markets over the next two years.
Mr. Kavcic said the ratio of sales to new listings in Toronto and throughout Ontario “is pretty much in line with historical norms,” but noted that the number of starts for new multiple-unit dwellings (largely condos) in Ontario over the past 12 months had outpaced single family homes by a factor of 1.5 to 1, up from a ratio of close to 1 to 1 over the past decade and “pretty well the largest discrepancy we’ve seen in a long time.”
As a result, “to the extent where there is downward pressure on prices, the condo market is more at risk” in Toronto, he said.
Merrill Lynch warned last month that housing prices could correct by as much as 10 per cent in the next two years in Canada because of weakness in the economy, expressing particular concern about Toronto’s condo market. The Bank of Canada also warned the Toronto market looks overbuilt and could see prices drop.
source:
Last updated Thursday, Sep. 06 2012, 12:03 PM EDT
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