CMHC (Canada Mortgage & Housing Corp – an agency which advises the national government on housing policy) has issued a down-sloping housing market forecast for the next twenty-four months on Monday, which is predicting a negative price growth.
CMHC is not anticipating a massive correction for housing. The agency did say that we can expect prices to barely keep pace with inflation through 2017 and that sales and new home building will be slowing down.
“ In 2015, increased housing market activity in provinces like Ontario and BC – regions that have benefited from declining energy prices, a lower Canadian dollar, and continued low mortgage rates offset slowdowns in oil-producing provinces like Alberta. We expect, however, that this counterbalancing effect will decrease over time. ” said a CMHC spokesperson.
The agency also stated the average price of an existing home during the next several months will climb to a peak of $437,000, a 7% per cent increase from 2014. Beyond that, they forecast the annual increase will be down to 1.3% through 2016 and only another 1.4% will be added in 2017. They expect existing home sales to decline by 3% in 2016 but by less 1% in 2017.
Paraphrasing the report, the big question is to what extent the condo markets in Vancouver & Toronto are overshooting… They mention a good starting point is to assess the trajectory of recently completed and unabsorbed units. An increase there suggests that developers are finding it increasingly hard to sell completed units; which is usually a first sign of troubles ahead.
In Vancouver, the number of unabsorbed units fell during the past year from just over 2,000 to the current 1,100 indicating an improving situation. But in the Greater Toronto Area, in 2015, there was a notable increase in the number of completed, or fully built, condominiums. In the GTA, CMHC decided to register 10,000 condos in the month of January 2015 and they had seen no fewer than 26,000 condo completions in the first half of this year; which equates to 3 times more than the level seen in previous years.
According to CMHC’s information, between December 2014 and May 2015, the number of unabsorbed units went up in Toronto from less than 1,000 to close to 3,000; a level that is even higher than what was seen in the early 1990s. But that number has since declined. About one-third of all unabsorbed units were constructed by four developers. Five projects coming into the market at once account for about one-quarter of the unabsorbed units on the market today
Greater Toronto Area’s condo market will be tested as interest rates begin rising in the coming years. Increased resale activity from domestic condo investors will result in excess supply and some downward pressure on prices. CHMC advises those who look at the rise in unabsorbed units as a sign of increased vulnerability are barking up the wrong tree.
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