Real Estate Prices In Canada Begin To Cool

The question of when and how the Canadian real estate market will cool down seems to depend on who you ask. According to the story released this month in the “Globe and Mail,” TD Bank bluntly foresees that by the later half of 2011, real estate values will fall 2.9 percent, but not until they experience a 9% climb in market price over 2009 prices. However a nationwide real estate breakdown is not inevitable, retorts BMO Capital Markets’ economist Sal Guatieri, who draws attention to “The Montreal Gazette” that when the housing bubble finally pops, it should simply disturb major cities. But they all agree that the Canadian real estate market will have to cool down, but just when it will take place and how quickly it will fall is the question still up for review.

Guatieri pointed out that the price for a family home should be “about four or five times income,” however the current market in Toronto and Vancouver is running around $700,000, that averages 10 times the earnings of the home owner. Although TD Bank had at first predicted 1.6 percent gains in 2011, this kind of real estate hyper inflation in the midst of economic recovery has in fact compromised the market, and they are already witnessing the signs of slow down this year derived from the surge of new housing starts and new listings. places like Mississauga are currently seeing an increase in new Mississauga condominiums however sales could begin to cool.

In their discussion with “The Vancouver Sun,” TD admitted that their forecasts have been off in the past, because their late 2009 estimate did not expect the increase in first quarter sales for that year that was an unexpected “move by buyers and sellers to pre-empt regulatory and interest-rate changes”. This surge, especially in Ontario and British Columbia, stems from the July deadline in those provinces for the HST tax to come into effect. The shift has affected borrowing costs already, with the Bank of Canada expected to increase their overnight target rate in June or July from the record setting low of 0.25 percent. More expensive borrowing rates could act on cottage country with lower values for places like Wasaga Beach real estate and this could represent a chance for buyers.

As family incomes catch up with the level of inflation — an astounding 8 percent over the past 8 years — TD forecasts that overvalued housing values will continue to fall from 15 to 10 percent by the last part of next year. This is reinforced by a decline in MLS sales, that as well consists of Toronto MLS listings, over the previous 6 months that the Canadian Real Estate Association has noticed. The sole debate that is on the table is what impact the inflated values will have on the housing market as a whole in the near term and going forward.

“As a result of the stronger supply response, the market balance is now expected to be somewhat softer next year, consistent with market conditions more favorable to potential buyers and a mild depreciation in home values,” explained Gauthier. But Guatieri believes the approaching slow down phase does not automatically mean that home prices will actually drop, but sees it as a slow change following the recent surge. One fact both Guatieri and Gauthier do foresee on the horizon, though, is that regardless of when it hits, the calming shift will not last forever, and inside of 3 years the average home price in Canada should come into balance and come back to its fair market prices.