Market Update 21/06/18 |

The recent easing of home prices in Ontario, more locally, the GTA isn’t expected to last long, thanks to sold economic growth projections and rising interest rates. The market will see “moderate” increases in home prices in 2018 and 2019.
“Home prices are plateauing and are expected to grow along a more sustainable linear path supported by continued economic growth, moderate increases in interest rates and only modest increases in new housing supply” indicated CMHC Ontario Regional Economist Ted Tsiakopoulos.
There are 2 types of factors that shape the outlook of home prices, real and compositional. Real factors include the stage of the economic cycle the province is in, the level of ownership affordability, the level of in-migration and the balance between supply and demand. Compositional factors relate to the mix of homes expected to sell in 2018 and 2019.
With affordability eroding, interest rates rising and the introduction of new mortgage rules consumer demand has begun to shift towards higher density housing as some first-time buyers opt for less expensive homes in order to qualify for mortgage financing. Other potential first-time buyers may opt to rent instead as an affordable alternative.
It is also important not to paint the entire real estate market with one brush. More affordable segments of the market will outperform expectations, as will more affordable urban centres in eastern and southern Ontario, as GTA prices resume growth.
In York Region, there are a few markets that are in higher demand. In these markets, the ratio of average sale price to listing price was over asking.
Markham: Semi-Detached homes – 101%
Richmond Hill: Semi-Detached Homes – 101%
King: Townhomes – 105%
Overall, nominal home prices should grow in line with the general rate of inflation over the 2018/19 period. This is good news for prospective buyers as fewer bidding wars will result in less urgency to act. For homeowners and investors, it means home price expectations will need to normalize.
The current home price correction in Ontario will likely not persist as it fails to resemble the more serious downturns from previous years. While imbalances continue to persist, they are easing and fundamentals such as income growth, growth in new households and the level of interest rates will support home prices relative to historical price bust period experiences.

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