2010 housing market outlook in-depth

Proud Sponsor of the Learning Quest 2010 Seminar Series

REALTOR® QUEST 2010

From Recession to Recovery to… What?:

Charting the Housing Market’s

Course in 2010/2011

Presented by: Jason Mercer, Senior Manager of Market Analysis

Part 1: Bubbles – Some Myths

and Realities

Part 2: Market Drivers

Part 3: 2010 / 2011 Outlook

Part4: The Long-Term View

Part 5: TREB Member Resources

Average Price Continues to Rise…BIG TROUBLE???

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Source: Toronto Real Estate Board

Average MLS® Selling Price - GTA


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000



MLS® Average Price (Nominal)

MLS® Average Price (Inflation Adjusted)

Real price is back where it was in

1989! Must be a bubble, right?


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000



MLS® Average Price (Nominal)

MLS® Average Price (Inflation Adjusted)

Price is back where it was in 1989!

Must be a bubble, right?

Tough to Make

this Argument

- Price on its own tells us nothing

What about price-to-income ratios?

2.5

3

3.5

4

4.5

5

Source: TREB; Statistics Canada

Ratio of Average GTA MLS® Price toAverage GTA Household Income

Getting close to the 1989 peak. Evidence of a

bubble?

2.5

3

3.5

4

4.5

5


Ratio of Average GTA MLS® Price toAverage GTA Household Income

Getting close to the 1989 peak. Evidence of a

bubble?

What about price-to-income ratios?

Tough to Make

this Argument

- Mortgage Rates Would Have to be Constant

By and Large We Pay for Homes Using a Mortgage

2%

7%

12%

17%

22%

Source: Statistics Canada

Average 5-Year Fixed Mortgage Rate: Historic & Forecast

Mortgage Principal and Interest a better indicator

0

10,000

20,000

30,000

40,000

50,000

60,000

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

Source: Toronto Real Estate Board, Statistics Canada

Average Principal and Interest Payment (P&I)Inflation Adjusted (2009 Dollars)

GTA Real P&I

NOTE: Assumes 20 per cent down payment and a mortgage amortized

over 25 years using the average 5-year fixed mortgage rate.


0

10,000

20,000

30,000

40,000

50,000

60,000

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07



GTA Real P&I

Can Real P&I




0

10,000

20,000

30,000

40,000

50,000

60,000

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07



GTA Real P&I

Can Real P&I

GVA Real P&I



Income – The Final Piece of the Puzzle

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

Source: Statistics Canada; TREB Estimates and Forecast

Toronto CMA Average Household Income

Share of Income Used for Mortgage Principal & Interest

10%

15%

20%

25%

30%

35%

40%

45%

50%


Mortgage Principal & Interestas Share of Average Household Income

GTA

NOTE: P&I calculation assumes 20 per cent down payment and a mortgage amortized over 25 years using the

average 5-year fixed mortgage rate. Average household income based on the Census of Canada and the

Statistics Canada Labour Force Survey.


10%

15%

20%

25%

30%

35%

40%

45%

50%



GTA

Canada





10%

15%

20%

25%

30%

35%

40%

45%

50%



GTA

Vancouver

Canada




25%

30%

35%

40%

45%

50%

55%

Source: Toronto Real Estate Board Data and Calculation; Statistics Canada

TREB Affordability Indicator Share of Average Household Income Used for Mortgage Principal and Interest, Property Taxes and Utilities on the Averaged Priced GTA Resale Home

Affordability: Share of Income Used for Housing Payments

NOTE: P&I calculation assumes 20 per cent down payment and a

mortgage amortized over 25 years using the average 5-year fixed

mortgage rate. Average household income based on the Census of

Canada and the Statistics Canada Labour Force Survey.

Affordability Can Be Broken Down by District

Affordability Can Be Broken Down by District

?

25%

30%

35%

40%

45%

50%

55%








25%

30%

35%

40%

45%

50%

55%








What if we assumed that the GDS Ratio had to remain at 32%, with the average

home price having to adjust to make up for changes in interest rates, income etc.?

Concept of Justified Price…Suggests No Bubble Right Now

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

Source: TREB, Statistics Canada

Actual GTA MLS® Price vs.Average Price Justified by Constant 32% GDS Ratio

Actual GTA Average MLS® Price

Concept of Justified Price…Suggests No Bubble Right Now

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000



Justified Average MLS® Price Assuming a Constant GDS Ratio of 32 Per cent


Bubble

LTT


and Realities





Components of Affordability

Average

Price

Hhld

IncomeMortgage

Rates

Taxes &

Utilities

? ? ? ?

Economic Recovery is Underway in Canada

-1.2%

-0.8%

-0.4%

0.0%

0.4%

0.8%


Canadian Real GDP, MonthlyMonth-Over-Month Per Cent Change

GDP Growth Will Continue in 2010

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Source: Statistics Canada; Bank of Canada Baseline Forecast

Canadian Real GDP, QuarterlyAnnualized Quarter-Over-Quarter Per Cent Change

Components of GDP Growth

FACT: More than 60 per cent of Canadian GDP is accounted for by personal expenditure

-2%

-1%

0%

1%

2%

3%

4%


Canadian Consumer Price Index (CPI)Year-Over-Year Per Cent Change

CPI Annual Per Cent Change

Core CPI (Bank of Canada) Annual Per Cent Change

Consumer Price Growth Hovering at BoC Target

Bank of Canada Will Increase the Overnight Rate

0%

1%

2%

3%

4%

5%

6%

Source: Bank of Canada; TREB Forecast

Bank of CanadaTarget for the Overnight Lending Rate

Slope of Yield Curve Changing

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Bill

/Bo

nd

Yie

ld

Source: Bank of Canada; TREB Forward Rate Calculations

Canadian Government of Canada Bill/Bond Yield CurveSpot and Derived Forward Rates

Spot (May 5, 2010)

December 2010 Forward Curve

December 2011 Forward Curve

Variable and Fixed Mortgage Rates Will Increase Disproportionately

0

1

2

3

4

5

6

7

8

9

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Pe

r C

en

t

Source: Bank of Canada; TREB Forecast

Prime Rate and 5-Year Fixed Mortgage RateHistoric and 2010 Forecast

Average 5-Year Fixed Mortgage Rate

Prime Rate

Rates Will Still Be Very, Very Low Historically

2%

7%

12%

17%

22%

Source: Statistics Canada; TREB Forecast

Average 5-Year Fixed Mortgage Rate: Historic & Forecast


Average

Price

Hhld

Income

Mortgage

Rates

Taxes &

Utilities

? ? ?

GTA Employment Will Improve in 2010 & 2011

-2%

-1%

0%

1%

2%

3%

4%

2,650

2,700

2,750

2,800

2,850

2,900

2,950

3,000

3,050 Emp

loym

en

t An

nu

al Pe

r cen

t Ch

ange

Act

ual

Em

plo

yme

nt

(,0

00

s)

Source: Statistics Canada, TREB Forecast

Toronto CMA EmploymentActual and Annual Per Cent Change

Annual Per Cent Change

GTA Average Employment

GTA Unemployment Will Be Above Average in 2010

5%

6%

7%

8%

9%

10%

11%


Toronto CMA Unemployment Rate(Seasonally Adjusted)

Earnings Will Trend Upward

$740

$760

$780

$800

$820

$840

$860

$880

$900


Toronto CMA Average Weekly Earnings(Seasonally Adjusted)

Household Income Growth Picking Up in 2011

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

Source: Statistics Canada; TREB Estimates and Forecast

Toronto CMA Average Household Income


Average

Price

Mortgage

Rates

Taxes &

Utilities

? ?Hhld

Income

Up

Slowly


Average

Price

Mortgage

Rates ?Hhld

Income

Up

Slowly

Taxes &

Utilities


and Realities





MLS® Sales Remaining Strong but Edging Lower

20%

30%

40%

50%

60%

70%

80%

90%

100%

50,000

70,000

90,000

110,000

130,000

150,000

170,000

190,000 Sales-to

-Ne

w Listin

gs Ratio

Sale

s/Li

stin

gs T

ren

d (

An

nu

aliz

ed

)


TREB MLS® Annualized Sales/Listings Trend: Historic & Forecast

MLS Sales

More Home Owners Will List

20%

30%

40%

50%

60%

70%

80%

90%

100%

50,000

70,000

90,000

110,000

130,000

150,000

170,000

190,000 Sales-to

-Ne

w Listin

gs Ratio

Sale

s/Li

stin

gs T

ren

d (

An

nu

aliz

ed

)



MLS SalesMLS New ListingsSales-to-New Listings Ratio

Market Conditions Not as Tight in 2010

20%

30%

40%

50%

60%

70%

80%

90%

100%

50,000

70,000

90,000

110,000

130,000

150,000

170,000

190,000 Sales-to

-Ne

w Listin

gs Ratio

Sale

s/Li

stin

gs T

ren

d (

An

nu

aliz

ed

)



MLS SalesMLS New ListingsSales-to-New Listings Ratio

After Very Strong Price Growth in 2009 & Q1 2010

200,000

250,000

300,000

350,000

400,000

450,000


TREB MLS® Average Price Trend: Historic & Forecast

…the Average Price Trend Will Flatten

200,000

250,000

300,000

350,000

400,000

450,000


TREB MLS® Average Price Trend: Historic & Forecast


Mortgage

Rates

Up

Hhld

Income

Up

Slowly

Taxes &

Utilities

Up

Average

Price

Up

Slowly

The Cost of Home Ownership Will Rise

25%

30%

35%

40%

45%

50%

55%







Average Price and Justified Price Will Move In Line

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000



Justified Average MLS® Price Assuming a Constant GDS Ratio of 32 Per cent



and Realities





Immigration Drives Population Growth

GTA Most Diverse Metropolitan Area in the World

0% 10% 20% 30% 40% 50%

Washington DC

Montreal

New York City

Melbourne

Sydney

Los Angeles

Miami

Vancouver

Toronto

Source: Adapted from Statistics Canada, 2006 Census Analysis Series

Share of Foreign-Born Populationin Major Metropolitan Areas

Sustained Population Growth is Projected

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

Source: Statistics Canada, Ontario Ministry of Finance Projection

Toronto CMA PopulationHistoric and Projected

Historic Toronto CMA Population

Projected Toronto CMA Publication

MLS® Sales Will Follow Population Trend – Long Term

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Source: Statistics Canada, Ontario Ministry of Finance Projection

GTA MLS® SalesHistoric and Projected

Actual Existing Home Sales

Historic Trend

Long-Term Sales Projection


and Realities





TREB Housing Market Charts

TREB Economic Commentaries

Thank You!

Any Questions?

2010 housing market outlook in-depth

Documents

price gtaaverage price

argument price

dollarsgta real pinote

year fixed mortgage

payment piinflation

argument mortgage rates

statistics canada treb

better indicator010