Jakemann Racing

The issue of when and how the Canadian real estate market will cool down seems to rely on who you ask. As specified by the story issued this month in the “Globe and Mail,” TD Bank bluntly predicts that by the second portion of 2011, real estate values will drop 2.9 percent, but not until they undergo a 9% increase in market price over 2009 values. However a nationwide real estate meltdown is not assured, retorts BMO Capital Markets’ economist Sal Guatieri, who draws attention to “The Montreal Gazette” that when the real estate bubble eventually pops, it should simply affect major cities. One thing they both seem to agree on, however, is that the Canadian housing sector is headed for a cooling trend — the question is just how much and how soon.

As Guatieri draws attention to, today’s values for average houses in Vancouver or Toronto — around $700,000 — is approaching 10 times the homeowner’s income, but that in a normal market “a more normal price is about four or five times income”. This kind of hyper-inflation is what prompted TD Bank to not equate recession recovery with housing value, because their previous estimate of 1.6 percent gains in 2011 are already being undermined by the rise in the amount of new listings and new real estate starts this year, a sure sign of the beginning of the cooling trend. places such as Mississauga are still seeing an escalation in new Mississauga condominiums however sales could begin to cool.

However TD did have to acknowledge in their talk with “The Vancouver Sun” that their 2009 prognosis were short, since they did not take into account “a move by buyers and sellers to pre-empt regulatory and interest-rate changes” that resulted in a distinct first quarter surge in real estate sales. The looming harmonized sales tax due to come online in July in Ontario and British Columbia definitely affected markets in those provinces. In anticipation of this July time limit, the Bank of Canada has already announced its intention to raise their overnight target rate by July to counterbalance the current record setting low rate of 0.25 percent.The toughest affected housing sectors might be cottage country, like Wasaga Beach real estate, as sellers may flood the market with homes before the deadline.

TD is of the belief that real estate values are somewhat overvalued and that prices will proceed in a downward trend well into the next year as a result of family incomes that are attempting to catch up to the inflation rate. This is bolstered by a decline in MLS sales, that as well consists of Toronto MLS listings, over the last 6 months that the Canadian Real Estate Association has noticed. But everyone can see signs that the whole housing market has been affected by the high proportion of inflated prices in the cities — how far this influence will spread is the primary question.

Gauthier describes his projections are a result of the “stronger supply response,” and that 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”. But Guatieri is not satisfied that prices will actually drop, but rather will just cool off enough to adjust after the recent escalations. One thing both Guatieri and Gauthier do foresee in the future, though, is that regardless of when it strikes, the calming shift will not last for good, and inside of 3 years the average real estate price in the country should come into balance and come back to its fair market prices.