Almost 3 weeks into January and how’s the Real Estate market looking? First let’s recap on what happened in 2010 and how it lead into 2011…
Much like 2009, 2010 was anything but stable.
We witnessed in the first quarter of 2010 a flurry of sales activity. This was caused by a lack of inventory in the market and eager buyers looking to purchase a home before changes in lending rules (home owners having to qualify for a 5 yr fixed rate even if they plan on going with the variable rate) and HST was to be implemented. Rates were still historically low and continue to be the norm today (how long that will last, we’ll just have to see). Once HST hit on July 1st, the market went quiet. There were still a few transactions being done, but nothing like the previous months. People didn’t understand that HST wasn’t that big an impact to resale as it was for new homes over 400K. Once they realized this, in September buyers started coming back to the market. From September to mid-December sales were back to sustainable levels. On a side note, every transaction I was involved in during Sept-Dec, I found myself in a multi-offer situation… crazy. The average home selling price was up 9% in 2010 compared to 2009; it went from $395,460 to $431,463.
So how’s it looking now ?
Here’s where we’re at: Interest rates are still historically low at 3.59% for a Five Yr fixed, and the variable rate at 2.1%. Recently, Finance Minister Jim Flaherty announced that they’ll be implementing another change by reducing government-backed mortgages from 35 yrs to 30 yrs. What this means is that for those buyers that are right on the edge of qualifying for a mortgage at a 35 year amortization period, have now been taken out of the market. Also, home owners will now only be able to refinance their home up to 85% as opposed to 90%. There’s was also discussion of CMHC calculating 100% of condo maintenance fees as opposed to 50% when qualifying buyers for a mortgage. However that was shut down as it was determined that it would be discriminatory towards condo owners. Phew… that was a close one.
Prior to Flaherty’s announcement, many in the industry, including the Senior Manager of Market Analysis Jason Mercer, felt that prices could go up by as much as 5%. Not so sure they’re that bullish now. The market will definitely be impacted by Flaherty’s announcement, but I do believe we’ll see a more balanced market. What that means is that there’ll be sufficient inventory to sustain the demand.
A few key points:
- Interest rates still historically low: Bank of Canada announced that prime rate staying where it’s at and we could potentially see rates remaining low for the remainder of 2010
- Here in the GTA we get the most immigration compared to the rest of Canada. That includes people moving from within Canada as well as from other countries. Demand for housing is healthy.
- Couple that with the fact that there’s less land for development, and you have a recipe for growth. The price of land goes up in turn driving the price of a home to go up. All we can do now is build up.
- The unemployment rate is stable at 8%
However, this is not set in stone. Although the real estate market is not as volatile as stocks, there are many variables that affect which way it goes. For instance GDP is something that impacts it. A good chunk of our GDP is geared towards the U.S. and with them not looking so good, it’s something to keep an eye on. If interest rates suddenly sky rocket, then we could see buyers leaving the market and sellers left with their homes on the market and their pockets empty. Oversupply of available homes is always a concern as more and more condos hit the market.
Having said all this, real estate is cyclical. There’ll be booms and lulls, so it’s important to have an experienced real estate advisor to help you recognize where we’re at and to advise you according to your goals.
Please feel free to contact me… I’m open to any and all comments and questions.
Have a Great Year!
edmund fajardo
Real Estate Advisor
Coldwell Banker Terrequity Realty
efajardo@terrequity.com
416-495-3148
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