Strong new home sales, near record sales in the resale market and sustained job growth are three of the predictions for 2008 according to the Canada Mortgage and Housing Corporation 2008 Housing Market Outlook for the Greater Toronto Area released recently.
Total new home sales will be slightly lower than in 2007, partly due to fewer existing home buyers moving into the new home market. Of the 38,000 total new home sales predicted for 2008, half that number or 19,000 will be in high-rise apartment sales. The remaining 50% of pre-construction sales will be made up of low rise sales (i.e., single-detached, semi-detached and row/town houses, including stacked townhouses). Single-detached homes will only account for 30% of the homes sold in the GTA next year, the lowest number ever.
CMHC predicts that the average price in 2008 for single-detached homes in the GTA will be $540,000. Based on our industry’s recommended gross debt service ratio of 32%, the annual combined gross household income required to carry this mortgage would be $121,385. Because many first-time buyers and owner households will have incomes below this amount, many buyers will opt to purchase a less-expensive multiple-family home. In this market, condominium apartments will be the most popular choice.
In the City of Toronto, condominium apartments will make up the great majority of home starts in 2008. Single-detached starts will decline to 12,500 with most of those occurring in municipalities where prices are lower than the GTA average, such as Durham Region.
Condominium apartment completions are expected to rebound in 2008. Based on CMHC’s Fall Rental Market Survey, investors owned between 20 and 21 per cent of registered condominium apartment stock and could hold a greater share in unregistered projects. As projects complete, some of these investors will choose to sell their apartments to take advantage of increases in market value which occurred during the construction period. These increased sales are NOT forecast to result in declining values for condominium apartments.
Currently, the resale market is very tight, with sales accounting for almost half of active listings. Further, the number of completed and unoccupied units is very low, ranging between 1,500 and 2,000 units. These tighter market conditions have resulted in average condominium apartment prices growing at an annual rate of close to 10 per cent in 2007. As more supply comes onto the market over the next year, however, the anticipated rate of price growth should be closer to five percent.
The resale market will edge slightly lower in 2008 but sales will remain at a near record close to 90,000 throughout the year.
Sustained job growth and labour income, choices in mortgage products that keep borrowing costs low and an ample choice in resale homes will keep the demand for resale homes strong during 2008.
CMHC suggests that as home owners list their homes in order to move into completed new homes or to trade up or down size, more listings relative to sales will translate into more choice for buyers.
CMHC anticipates that a better-supplied existing home market translates into moderate annual price growth. When buyers have more homes from which to choose, they are less likely to make offers at or above list, or to enter into “bidding wars” with other buyers. The average existing home sale price in 2008, across all housing types from single-detached through condominium apartments, will be $388,000 or approximately a 4.6 per cent increase over 2007.
It is expected that the City of Toronto will remain the tightest market across all housing types, with average price growth close to three times the rate of inflation. Durham Region will continue to offer the most choice for home buyers with price growth at around 1.5 times the rate of inflation. The Regions of Halton, Peel and York will continue to be a seller’s market, but not as tight as in the City of Toronto. These Regions can anticipate an average price growth around 2.5 times inflation.
The cost of home ownership will remain manageable for the average household in the GTA over the next year. Even though home prices will continue to grow at more than twice the rate of inflation, low borrowing costs will moderate these increases.
The required combined gross household income to carry a mortgage on a home priced at the forecast average of $388,000 will be $87,217. This number is approximately six per cent less than the estimated average household income in the GTA and suggests that a great number of households in the GTA planning on purchasing a home will be able to comfortably manage home ownership.
The unemployment rate in Toronto is forecast at 6.4 per cent for 2007 and 2008 - below the average unemployment rate experienced over the past two decades. Average earnings will rise faster than inflation next year and suggest that households will continue to look at improving their housing situation.
To read the full CMHC article, Download CMHC-2008Forecast-Toronto.pdf | 