Toronto real estate cooling? Nah

Toronto real estate cooling? Nah

By Susan Pigg | Fri Apr 20 2012

Toronto’s gravity defying house prices should continue their upward climb over the next three years with gains of about 4 per cent both this year and next, predicts a new housing report by Central 1 Credit Union.

That means the average Toronto home could cost $523,000 by the beginning of 2014, up from about $500,000 right now, despite interest rates that could climb to an average of almost 4 per cent for a one-year term and 5.7 per cent for a five-year rate by 2013, says the report released Friday.

The average house price across the rest of Ontario should hit $378,700 this year, up about 3.4 per cent, and register further gains of 4 per cent next year before slowing to about 2.6 per cent in 2014, says the Ontario Housing Outlook 2012-2014 report.

While interest rates are expected to climb further in 2014, they are likely to remain at near historic lows, says the report by Central 1 chief economist Helmut Pastrick.

“My view is that the market is not overvalued, that we’re not in a housing bubble. What we’re seeing is high prices that are just due to supply and demand fundamentals, for the most part,” says Pastrick.

“I don’t expect a price correction any time in the next couple of years.”

Pastrick remains similarly bullish on the condo market, which has raised concerns even in Ottawa that the record pace of condo construction in Toronto, in particular, is out of whack with reality.

Not so, says Pastrick.

“It looks like that market will perform reasonably well. There may be some oversupply coming but I think the market will generally handle that. It won’t have a widespread effect on the housing market in the rest of the GTA.”

In fact, with the GTA’s population expected to increase by about 45 per cent over the next 25 years, the need to go up, rather than out, is likely to keep demand for condos steady, he predicts.

“My 25-year projection for prices would be upwards.”

Housing sales should slow in 2014, however, as interest rate hikes start to dampen demand, Pastrick predicts.

Strong economic growth and low interest rates should boost home sales to 204,400 units this year, higher than the 198,900 Central 1 had previously forecast, the report notes. And while this year has started out stronger than usual for sales — thanks in part to an early spring and fears rates are set to rise — that demand should ease by the second half of the year, says Pastrick.

The one region expected to see weaker demand for housing, and price increases of less than 2 per cent this year, is Ottawa where the federal government has announced it plans to cut 19,200 jobs, about 5,000 of them in the capital, over three years.

Ontario’s planned 1,500 staff cuts by 2014 will also be felt.

“Not surprisingly, the public sector will be a drag on growth and employment. Fiscal austerity is the catchphrase of the day as provincial and federal governments tighten spending growth to return to balanced budgets through spending cuts.”

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