Housing Supply to Increase, But Affordability Still A Concern
October 31, 2019
Housing Supply to Increase, But Affordability Still A Concern – Over the next 2 years, the construction of new homes in Canada will see a rebound because of strong economic conditions. However, this new supply will not make housing more affordable in expensive cities like Toronto.
The Canada Mortgage and Housing Corporation (CMHC) increased the upper end of its housing starts estimate for the country by 4% to 204,300 for 2020, after a few years of slower activity. In Ontario, the estimate is for a high of 69,800 next year compared with a high of 64,700 this year. Factors contributing to the increased supply are population growth, rising incomes and strong employment.
This added supply is not expected to dampen house prices. The CMHC is expecting that the national average selling price will increase by as much as 7% next year to $531,000. The average sale price year-to-date for all home types in Ontario was $600,497, with the CMHC forecasting an increase in 2020 to $633,000 (5.41%). In the Toronto region, which includes the city and its outskirts, the composite benchmark home price hit a record high of $806,700 in September. That price includes all types of housing such as condos, townhouses and detached houses.
Although there has been an addition of supply to the marketplace, the issue is more the type of supply. CMHC data shows that 60% of the new housing supply across the country is condos, townhouses and other multi-residential properties, but a number of these homes are not affordable for the average family such as two- and three-bedroom condos.
CMHC predicts that home resales will increase nationally from between 453,000 and 467,800 in 2019 to between 480,600 and 497,700 next year. In Ontario, the Toronto Real Estate Board has currently completed 67,957 sales and is estimated to finish around 85,000 sales, an increase of 8.9% over last year.
As housing affordability becomes more of a concern, buyers are pushing their financial limits. On October 30th the Bank of Canada held its overnight key lending rate to 1.75% indicating that the outlook for the global economy has weakened. Reasons leading to the Bank of Canada’s decision are the ongoing trade conflicts and the unwillingness of businesses to invest, trade and grow globally.
If interest rates or unemployment were to rise more than expected, heavily indebted households could face greater budgetary constraints, leading to downward pressure on the economy and housing activity.
The CMHC predicted that the Bank of Canada would increase the key lending interest rate of 1.75% “gradually” in the latter half of 2020 and forecast a five-year fixed mortgage rate of between 5.4% and 5.5%. That compares with between 5.2% and 5.3% this year.
There has been no change to the key lending interest rate for the past year. The next interest rate announcement will be on December 4.
* written by Benczik Team Realty Housing Supply to Increase, But Affordability Still A Concern
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