Real Estate Market Forecast for 2010

Trying to do a forecast of what is likely to happen in the real estate market in 2010 for the Collingwood, Blue Mountain and Georgian Triangle area is a bit like playing at a roulette table.  There are way too many strategies, systems, odds and lucky omens to consider.

I've spent the better part of the last week tabulating, reading, crunching, analyzing and surmising.  You've already seen the data from 2009 over the last couple of posts.  Below are some of the things I've been studying that will impact our market over the next 12 months or so.

General Economics

• Canada is the leading country in the G7 for economic growth.  Foreign investors are attracted to Canadian commodities, stocks and real estate assets
• There are trillions of dollars of commercial debt outstanding in the U.S. and the ability to service it will potentially impact the Canadian economy.  Just look at Intrawest as an example.
• Some economists (generally the ones that were wrong all through the "recession") are saying we are in a housing bubble or headed toward one.  Others agree that there are elements in place such as a risk of rising interest rates but still others see a steady and sustainable recovery underway.
• Government stimulus decisions will impact us.  If they choose to say in too long, we risk inflation but if the government pulls out too soon, we can easily dip back into recession.
• Bankruptcies grew an alarming 41% in July to September but drop significantly in October.  We don't have data for the last two months.
• According to both RBC and the Conference Board of Canada,  consumer confidence is firming up with respondents feeling more positive about the economy in 2010.  The risk is that consumers will add to household debt relative to their incomes which increases their vulnerability should rates rise.

Real Estate Specific

• The introduction of the HST on July 1, 2010 will impact in several ways.  Buyers and Sellers will face higher costs on fees when buying or selling properties that close after July 1st.  The impact will potentially be quite large on new homes priced over $400,000.  Homeowners will have to absorb higher costs on things like household utilities and maintenance impacting general affordability.
• Many potential home sellers sat on the sidelines in 2009 having given up selling their homes or waiting for prices to firm up again.  Many of these sellers may list their properties early in 2010 as might others wanting to avoid the HST for closing later in the year.  These could drive up the inventory thereby suppressing property prices unless demand rises at the same level.
• For the same reasons, inventory levels of homes for sale could start to decline by June putting upward pressure on prices if the economy stays strong.
• Both commercial and residential vacancy rates continue to rise
• Interest rates could rise after the Bank of Canada guarantee to hold its overnight lending rate at 0.25% expires in June.  They could also stay where they are if inflation is not an issue.
• The Chief Economist for the Canadian Real Estate Association (CREA) thinks they are more likely to stay low through to 2011.

 Local Considerations

• At any given point over the last year, anywhere from 60-87% of properties for sale in the Georgian Triangle DID NOT SELL during their listing period.  The number of expired listings far exceeds the number sold.
• Sellers did not adjust their expectations as much as anticipated over the last 18 months. 
• The local market tends to follow the GTA market although to a smaller effect.  As the GTA is the economic engine of the Province with 1/5th of the country's GDP and 40% of all new immigrants landing there, it's economic performance directly affects us.  The Tornot market is BOOMING with unprecedented sales levels, a shortage of inventory and record setting pricing.
• The closest large urban market to us is in Barrie where they have a growing economic base and attract many commuters to the GTA.  Despite this, their average sale price of a residential property is relatively comparable to the Georgian Triangle urban centres.
• Who is buying or likely to buy in 2010?  It appears to be investors looking for a combination of personal recreational use and seasonal rental income, recreational buyers in general, retirees, some first-time buyers who in many cases plan to or have relocated to the area.  I've noticed an increase in two buyer categories in particular over the last year:  single, 50+ women who have moved to the area for lifestyle reasons and, immigrant Canadians who have settled for 10+ years in the GTA and are now branching into recreational property purchases and investments.

Prices

• In its Housing Market Outlook for 2010,  RE/MAX is forecasting an increase in prices of about 4% in the GTA
• CREA  is forecasting an increase of 1.7% in Ontario and a 4% increase in the number of sales
• If prices and interest rates climb in 2010, both predict that potential buyers will put off purchase decisions which will quickly cool off the hot market revising upward projections

 Predictions

I'm really tempted to say that I don't have a clue but that would be a cop out so I'll tell you what my gut is saying.  This is merely my own opinion and could be about as reliable as a throw of the dice.  On the other hand, it's based on 21 years of experience, a big ear to the ground and lots and lots of research.

I think we'll see a strong market in the first four months of this year as consumers try to beat the HST and potential interest rates hikes.  Based on this plus our normal seasonal trends, we may see both sales and prices peaking in April and May.  After that, I think we'll see things slow down until the fourth quarter as people adjust to the implementation of the new tax and as it becomes clearer where interest rates are headed.  I don't think we'll see huge price gains in 2010 as we may face a surplus of inventory in the first half of the year and a slow-down in the second half of the year.  In general, prices should hold fairly steady with an annual increase over-all of under 2%.  I think we'll see continued strength in the condo market with increased inventory appearing in places like Lighthouse Point and Rupert's Landing as those people start to move into units at the new Shipyards development.  I suspect the demand will eat up that inventory leading to good unit sales.

Sellers need to adjust their thinking and remember that less than 50% of properties will sell and we may have sluggish prices in most of the market.  They need to spruce-up their homes to compete with new home inventory and should start concentrating on improving energy efficiencies as the "second price tag" of homes rises with the HST.

Buyers need to plan ahead for higher interest rates.  If rates climb by 2 or 3%, the future carrying costs should still be below the 40% of gross income threshold.  This is not the time to max out debt.  Buyers too should look for energy efficiencies in homes as the costs of utilities and associated taxes rise later in 2010.