Ontario home sales will rise by 5 per cent in 2011, while prices should hit a record high, according to a report on the state of the Canadian real estate market.
Central 1 Credit Union says a strong market in 2011 will also see housing starts increase by 9 per cent next year, in what has been the most bullish forecast for 2011 so far.
“An undersupply in the new home market will place upward pressure on resale home prices,” said Helmut Pastrick, chief economist with Central 1. “This will provide an incentive for builders to increase housing starts.”
Central 1 also expects house prices to increase by 4.5 per cent in 2011 to $356,500, up by 4.2 per cent.
The report is at odds with other economists who have forecast a far weaker housing market for 2011. It also underlines the difficulties that economists have in trying to read the volatile market moving forward.
While Central 1 says they expect housing starts to go up significantly in Ontario next year, hitting 66,000 units, the Canada Mortgage and Housing Corporation are forecasting that starts will decline to 55,000 units. The Toronto Dominion Bank is also calling for significantly lower starts of 47,000 units. The CMHC, like most other analysts is also expecting Ontario prices to remain flat or increase only slightly in 2011.
“The pace of job growth has started to cool, and we will likely see more cooling especially in the first half of next year,” said Ted Tsiakopoulos, Ontario regional economist for the CMHC.
“I’d say the momentum in Ontario real estate is in the other direction - activity has slowed,” said housing economist Will Dunning. “I would expect 2011 housing numbers in Ontario to be weaker than 2010.”
In order for housing starts, resale prices and sales to increase, you would have to see “a rapid pick up in job creation in Ontario which is not yet in evidence,” said Dunning.
However, the CMHC also released housing start figures for November on Wednesday which defied the expectations of most economists.
Toronto starts hit 51,100 seasonally adjusted and annualized units in November, up by 157 per cent from a month earlier. The stellar figure means starts are now 14 per cent higher this year than last year, and there is still one month to go.
The Toronto surge caught economists by surprise, pushing the national housing start figures to a much better than expected 187,200 units, representing an 11.6 per cent increase.
“The gain was almost entirely driven by a bounce in Toronto multi unit starts…the bigger picture continues to one of more moderate and stabilizing building activity,” said BMO Capital Markets economist Robert Kavcic.
While Ontario saw a massive increase in starts because of the Toronto market, most other provinces saw a decrease.
“Residential construction activity in November was making up for lost ground in October with strong increases in apartment and town home segments of the market,” said Tsiakopoulos. “However, it is unlikely that this above trend pace will be sustained.”
Slower job growth, less first time buyer demand and more choice in resale markets will temper any increases over the short term, said the CMHC.
“The rapid pace of sales earlier this year has resulted in strong starts for November,” said Ontario Home Builders’ Association president Bob Finnigan.
And despite the upbeat tone of the Central 1 report, Ontario builders are not gearing up for a record year.
“Looking forward to 2011 we are anticipating the housing market to level out with a moderate pace of activity,” said Finnigan.
Finnigan said home builders are pushing for the government to focus on job creation in 2011.
“We are watchful of the job market, because employment is a key indicator of economic health and something that could dampen performance in the coming year.”