The current correction in sales in Ontario, particularly prevalent in the Greater Toronto Area, has raised concerns about the possibility of a price bust.
CMHC has looked at whether this is likely in its newly-published Housing Market Insight with an analysis of historic data to detect future price vulnerabilities in the province.
It says that a combination of overvaluation easing in Toronto, growing employment and income rates, a rise in household formations, and continued low interest rates; make the possibility of a serious price correction quite low in Ontario.
“The current home price correction in Ontario will likely not persist as it fails to resemble the more serious downturns observed in the past. While imbalances continue to persist, they are easing and fundamentals such as employment, growth in new households and slightly higher interest rates will support home prices,” says Ted Tsiakopoulos, Ontario Regional Economist, Canada Mortgage and Housing Corporation.
The most likely scenario
The CMHC report suggests several likely scenarios for the Ontario housing market ahead.
In 2018 and 2019, relatively low interest rates and government spending hikes, will continue to support real estate in the province.
However, the type of homes being sold will play a key role in the price changes in the market. Specifically, new single-family homes will make up a lower share of sales, will restrain overall home price appreciation especially in more expensive markets such as Toronto and Hamilton.
House prices will continue higher province-wide but at a pace more in line with inflation; although higher migration and job creation means that the increase is expected to outperform CMHC’s Fall 2017 Housing Market Outlook.
Good news for first-time buyers
With more balanced markets, first-time buyers should have a better choice of homes to consider and more time to consider purchases as competition eases.
The report suggests that bidding wars will mean less urgency for potential home buyers to act but home sellers should expect their property to remain on the market longer.