Michael Polzler, who is the Executive Vice President and Regional Director for
RE/MAX Ontario-Atlantic Canada Inc., published the following commentary on the real estate market…
Toronto Real Estate Board stats for October created some heated dialogue in the industry in recent weeks. While many believe that the dismal statistics reflect the recent volatility in financial markets, some are now asking if they also identify an emerging trend in the Greater Toronto Area.
The simple answer is no. Although there are some serious negative factors influencing the marketplace, one month does not make a market. We need several consecutive months of momentum – one way or another – before we can really determine the direction of the market.
Make no mistake. 2008 has presented our industry with challenges across the board. Unit sales are down 16 per cent from one year ago, hovering at approximately 70,000, while average price at $380,654 is up marginally over year–to–date figures for the same period in 2007. And the prognosis will get worse before it gets better, considering the new land transfer tax rate implemented in January, 2008 artificially inflated housing values during the fourth quarter of 2007. Average price hovered close to $400,000 in October, November, and December of last year – which will be the measuring stick in the months ahead.
Clearly, market conditions have shifted in favour of the buyer. There are more homes listed for sale than one year ago and houses are taking longer to sell. Our forecast for 2008 – released in October of 2007 – said as much.
Sellers are adjusting to new market realities – albeit reluctantly – while buyers are taking it all in. Some are sitting on the fence, waiting for housing values to fall further or interest rates to decline a percentage point or two more. The courageous are jumping into the market, taking advantage of lower prices, greater selection, and less competition.
For those that are trading in the same market, it’s all relative. Sellers may get less than they thought for their homes, but they’ll also pay less on the other side of the transaction. With market conditions stabilizing, first–time buyers now have the luxury of time in making their housing decisions. They also have greater purchasing power than they had one year ago – and their dollar will go much farther.
Unlike other investment vehicles, residential real estate serves two purposes. It’s still considered an investment, but it is also a roof over your head. We know from past experience that housing appreciates at a rate of five per cent annually. It’s cyclical, so it may rise and fall, but the risk involved will never be as steep or as serious as in the stock market, where the value of your portfolio can drop 30 per cent overnight and some of your stocks can fall to 0. You also can’t live in your mutual fund.
Real estate in the Greater Toronto Area has faced many challenges over the years but continued to experience steady growth. In 2009, there are some announcements that are expected to have a positive impact on the housing market and they are as follows:
1. The Bank of Canada has indicted that lending rates may fall further in 2009.
2. Federal government intervention in the form of a $75 billion mortgage purchase from the CMHC will free up additional credit.
3. Measures will be introduced by both the Federal and Provincial government to bolster the economy. In Ontario, that could mean a bailout package for the ailing manufacturing sector.
4. A lower Canadian dollar – hovering at 85 cents American – may provide a much–needed boost to manufacturing.
5. Job employment rates continue to hold steady in the GTA, despite upward momentum at the provincial level. The unemployment rate was 6.8 per cent in October, down from 6.9 per cent in September.
6. Population in the GTA continues to grow through migration, with 60,000 plus households expected to form in 2009.
Last, but not least, we must remember that the Greater Toronto Area generates about 10 per cent of the country’s total wealth – that’s comparable to what New York, Chicago, Boston, and San Francisco make to the US economy. There’s no question that we are a world–class city – in a have–not province. We may be in for some challenges over the next six to nine month period, but we should see clear signs of recovery by late 2009. The good news is that lifecycle events will continue to occur, whether real estate is experiencing a bull or bear market.
Executive Vice President and Regional Director
RE/MAX Ontario-Atlantic Canada Inc.