Royal LePage predicts housing prices will remain hot
In this year’s fourth quarter, Royal LePage is doubling down on its forecast of a 16 per cent annual increase on home prices.
This is despite renewed warnings this week of global market crashes, including in real estate. CEO Phil Soper expects this winter’s housing market will be “unusually busy,” following brisk fall activity and a traditionally slower summer.
If this year’s forecast is correct, Canadian home prices will have climbed 33 per cent between the start of the pandemic recovery in June 2020 and the end of
this year.
In the Toronto area, Royal LePage predicts a 14.5 per cent, year-over-year increase to about $1.1 million from $955,000 in the final quarter.
The International Monetary Fund raised the spectre this week of markets, housing among them, correcting or crashing amid uncertain global economic conditions, including labour market and supply shortages, inflation and a slowdown in the economic recovery.
Last week, RBC reported that its measure of affordability climbed 4.1 per cent in Toronto in the second quarter.
It’s the highest jump in more than 30 years.
Speaking Thursday about his company’s House Price Survey, Soper said it is important to listen to the IMF’s warnings, “but if we were using their forecasting as a barometer, we’d still go sailing.”
Soper said that, while the acceleration of home prices is “concerning” and “uncomfortable,” it would be hard to imagine a crash without an economic crisis on the scale of the global financial meltdown of 2008.
“The pace of house price appreciation has been uncomfortable … but it’s not unprecedented,” he said.
About once a decade, we have a period where interest rates, economic fundamentals and consumer confidence drive up the price of real estate, said Soper. “Typically that is followed by a period of stagnant home prices.”
Diana Petramala, of Ryerson University’s Centre for Urban Research and Land Development, said she doesn’t see a crash in the offing, particularly in the Greater Toronto Area, where demand exceeds supply.
Historically, housing falters when there is a significant demographic shift and interest rates make real estate increasingly unaffordable, she said. Despite an exodus of Ontarians to other parts of the country during the COVID-19 crisis, immigration will likely resume, further boosting demand.
Household formation was expected to grow by about 12,000 to 13,000 per year between 2016 and 2021. But tax administration data that shows the number of people getting jobs and earning income between age 25 and 44 indicates that may have been an underestimate, said Petramala.
It shows that 21,201 people claimed the first-time, homebuyers tax credit in 2018, and 17,322 claimed it in 2019, which were two relatively slow years on the housing market, she said.
Royal LePage, which bases its forecast on proprietary data, expects Montreal, Vancouver and Ottawa to see higher fourth-quarter price growth than Toronto.
The aggregate price of a GTA home rose 17.9 per cent, yearover-year, to $1.08 million in the third quarter, including a 24.2 per cent increase in detached houses, to a median price of $1.35 million and a 12.3 per cent gain in condos, to $645,300.