Weekly Mortgage News for November 6, 2009

A slow week in economic news with this weeks top stories including how housing activity is on the mend in Canada, how Toronto home prices are expected to rise yet again and how Australia raised its rates again.

Housing activity on the mend

A national report released Monday from Canada Mortgage and Housing Corporation (CMHC) says that housing activity and prices will pick up next year as demand grows. Housing starts are expected to see a decline of 32.8% this year to 141 900 from the levels seen last year. New home building is expected to recover next year with a projected level of 164 900 for the 2010 year. The average listing price will also increase to $312 950 this year with another increase to $324 500 next year. There is an expectation that housing markets across Canada will strengthen going into and over the course of next year as we see economic conditions improve.
Demand for homes as also seen an increase from the start of this year as the new and existing home markets are at low inventory levels. This will cause stronger housing demand which will be seen in the housing starts segment in 2010. The strong pace of sales seen in the second and third quarter of 2009 reflects the pent up demand from the previous two quarters due to the economic downturn and consumers holding on to their cash. The current activity seen on the market is not likely to be sustained as government rebate programs dry up.
Existing home sales are expected to reach 441 300 units this year and reach 445 150 units next year, as measured by the Multiple Listing Service (MLS). Saskatchewan is expected to see housing starts drop to just 3 600 units this year which is almost half the levels seen last year. The good news is that a strong economy and a robust labour market will attract migrants to the province and cause housing starts to increase to 4 350 units next year, as expected by CMHC. Ontario saw some grim numbers with activity dropping 36.9% this year from the same time in 2008. On a brighter note, starts are expected to recover to 56 500 units by the end of the year.

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Toronto home prices to rise again

The most recent forecast from the Canada Mortgage and Housing Corporation (CMHC) states that housing prices in Toronto will continue to rise in 2010 and will do so by as much as 5%. Price growth is expected to slow but the buyers seeking relief from the tight 2009 market will be stuck facing another year of rising home values. By the end of this year the average price of an existing home is expected to be $392 540. Next year, the average price of an existing home is expected to be $412 000. The expectation of a 5% growth forecast is still in line with the average annual increase for this decade. The growth will be aided with sales of more single detached homes in the up and coming year.
The low interest rates are causing consumers to purchase nicer houses or move up to better neighborhoods which is causing average home prices to shift upwards. Although prices and listings are expected to move higher next year, sales are expected to be down 4.9% as the market looses steam from government stimulus programs that are winding down. We are currently on track to surpass last year’s sales figures by 7.3%. As pent up demand is satisfied and the market conditions begin to reflect underlying economic fundamentals, sales will cool in 2010.
Affordability will level out next year but will remain in check due to slow price growth and incremental interest rate increases. This year saw a lack of listings on the market with 17% less listings when compared to 2008 and that has placed upwards pressure on home prices. There is still a sense of uncertainty amongst sellers who are waiting for the market to show signs of stability before placing their homes on the market for sale. That is expected to change next year with listings forecasted to be up by 11% as move-up buyers gain confidence in our economic recovery. The expectation is that this will bring the market back to balanced territory next year. Single detached home sales have done well as of recently but the condo market is down in the short term. There is a tougher selling environment for high rise homes and sales are expected to decline 23% this year and will reach its lowest level since 2003. Construction delays and uncertainty regarding new condo projects this year has definitely moved consumers away from pre-construction projects and is reflected in the forecast. This has also been noted in less new project launches which have given fewer options for buyers in that segment.
A recent improvement in youth employment mixed with a shift to lower cost housing are expected to cause sales to increase by 17% by the end of next year. When looking at the rates, we should be expecting gradual increases next year with the one year rate expected to be in the 3.5% to 4.25% range and a 5 year fixed mortgage rate in Toronto expected to be in the 4.5% to 6% range. What do you think? Australia just raised their rates again. Do you feel that these rates are in line with what will be expected next year? Feel free to comment below.

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Australia raises rates again

This Tuesday saw Australia’s central bank raise its key interest rate by a quarter of a percent for the second month in a row. Australia has declared the global downturn over for them and has warned that inflation is set to rise. The decision to increase the rates was expected by analysts and moves Australia further away from most economies, which have not responded to signs that the financial crisis is coming to an end by raising their interest rates. The Reserve Bank of Australia’s board decided to raise their cash rate by 25 basis points (Bps) to 3.5%. Last month saw Australia become the first major economy to raise interest rates since the beginning of the economic downturn.
Governor Glenn Stevens released a statement explaining that inflation will probably not fall as far as earlier thought and will probably rise somewhat over the coming year. He also said, “With the risk of serious economic contraction in Australia now having passed, the board view is that it is prudent to lessen gradually the degree of monetary stimulus that was in place when the outlook appeared to be much weaker.”
Australia has managed the crisis better than most countries thanks to huge government stimulus spending and strong demand from China for its mineral resources. Mr. Stevens went on further to say that the global economy has resumed growing and that while expansion was expected to be modest in most countries; prospects for Australia’s Asian trading partners appear to be noticeably better.” China is currently going through a strong growth process and is having a significant impact on other economies that are its trading partners or in the same region.

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