More housing predictions: Prices will remain steady

Housing prices in Ontario, and in Toronto in particular, have been climbing over the past decade. It’s no surprise that experts have been lining up over that same period of time with dire predictions that the market would soon collapse.

While no one has a crystal ball, there are few indicators that dispute these worrisome predictions. A recent CBC article, 5 Reasons Toronto house prices won’t crash in 2016, provides excellent points on why the market is far steadier than some economists think.

While the article focuses on Toronto, we believe it’s fair to apply these conditions across Southern Ontario.

Supply hasn’t kept up with demand

The Canadian dream still includes home ownership. For anyone wanting to live in a city centre, the price of housing points to condos as the answer. The Fed in the US notes that the rising cost of fuel, recent conditions aside, is another factor that will push people into city cores. Fuel prices are low right now, but over the longer term they’re not expected to stay that way. Add potential carbon or climate taxes and the appeal of the city core only increases.

There is a myth in the market that there is an oversupply of condos out there. In fact, in many parts of Ontario, the condo market is just starting to open up. Opportunities still exist in downtown areas of growing cities like Barrie, Kitchener-Waterloo, Hamilton and Burlington.

It costs more to develop

The cost for developers to supply housing also has to be factored into any prices. Development charges have gone up in all urban areas. The Places to Grow act has put more demands and regulations on builders. These requirements all come with their own fees.

Most urban areas in Ontario have run out of space to build single-family homes in the city core. Even the suburbs are full. New popular outer suburbs, or exurbs as we sometimes say, are becoming available.

This is a great opportunity for a builder with vision for where the trends are going in the next 20 or 30 years. Remote working arrangements may mean the end of the daily commute and be supported by governments to ease the burden on the existing infrastructure.

The development fees tend to be lower and land is available in the outer edges of what used to be considered bedroom communities. Consider the success of the town of Milton. In the early 1980s, there was no town to speak of. The land was purchased and developed for far less than anything available in Toronto. Now it is a bustling, well-populated area. Where will the next Milton be?

The economy and interest rates

The article also reminds us that while there has been a lot of doom and gloom about the dollar and the economy, Toronto – and Southern Ontario – isn’t expected to dive into a recession. Growth has been slow and sluggish, but the economy is still moving.

Low interest rates are often brought up as warning. Interest rates are at historic lows and everyone expects that rates will go up. Any rate increases will be gradual and moderate as there is limited incentive to do so in the near-term. The banks are not interested in pushing clients into bankruptcy.

If anything, buyers would be more affected by the new CMHC rules requiring a higher down payment. While the new rules come into effect this month, mortgage experts are not expecting the updated regulations to have a significant impact.

If prices drop, they will rebound

When it comes to housing, the word “Bubble” is being misused. The article quotes Robin Wiebe, a senior economist with the Conference Board of Canada, in defining a bubble as “when people buy houses purely for speculative reasons, with the sole motive of making money.”

In Toronto, and in Ontario overall, that’s not the current situation. It has happened in the past. But that was in the early 90s – when prices crashed during the recession after an out of control doubling of prices in just three years.

Even with the crash, prices did eventually rebound. And again, fairly quickly, in 2008 after the recession hit.

If anything, speculation in the market may just be starting as foreign investors see the low Canadian dollar as an opportunity to invest. When the Canadian dollar rises again, so will the value of their investment.

Financing coupled with strategic advice

When considering your next development project, connect with us at MarshallZehr. Before we connect you with stable financing for the life of the project, we can also help you with strategic advice to consider the strongest locations and conditions for your project. Call today to learn how we can make a profitable difference to your next development.