Pen up demand in the Greater Toronto Area is going to be unleashed next year, according to Laurentian Bank Securities’ chief economist.
Sebastien Lavoie says the introduction of the Fair Housing Plan in April cooled the market, and that the inactivity is temporary. A lot of people wanted to enter the market, but with massive year-over-year housing appreciation sellers stood idle and constrained the supply of housing. While buyers re-entered the market by summer’s end, Lavoie says it will pale in comparison to next year.
“During the best months when things were up, conditions were overheating,” Lavoie told REP. “It wasn’t just foreigners but domestic buyers who wanted to get into the market, and there was low supply, because why would you put your home for sale when prices are going up 20-25% a year? A lot of potential buyers were on the sidelines to see if there was a cool down and a price correction, but that wasn’t the case, so they started to get back into the market during the late summer/early fall, and I expect that to continue next year because there’s still pent up demand.”
One reason Lavoie expects an active market in 2018 is employment, which traditionally drives the housing market, will remain strong. In spite of the new mortgage rules and potential interest rate increases next year—Lavoie doesn’t expect the latter to occur—employment is always the housing market’s primary driver.
“When you look at resale transactions, you had 10,000 transactions a month, which is a record-high for the GTA, but then it went down to 6,000,” he said. “But at the current employment levels, it shouldn’t be 6,000 transactions because that’s how many there were during the financial crisis. It should be around 8,000 resale transactions a month, and it went up to about 6,800 transactions in October. But there’s still some way to go.”
Lavoie concedes Guideline B20 could put a spanner in the works next year and prevent market activity from reaching levels commensurate with the robust economy, but he noted that immigrants who settle in Ontario perform better than the national average and that should be more impactful than B20. In particular, after 10 years in Ontario, they have the same unemployment rate as their Canadian-born compatriots.
“Maybe we won’t get there because of B20 guidelines, but when you think about it, the immigration integration into the labour market is higher in Ontario than any other province and that tends to trickle down to mortgages. Maybe not a prime to start with; they might start with alternative and then they’d have enough credit history to jump into the prime space,” said Lavoie.
In2ition Realty’s Founder and CEO Debbie Cosic says next year’s second quarter is when the market will pick up, partially because that’s when most condo launches occur, but also because the pent up demand Lavoie talked about is especially pronounced among families.
“There will be continual growth, particularly in the condo market in the multi-family marketplace,” said Cosic. “We’re basing that on the lack of supply and other factors like immigration and affordability. The only affordable option is multi-family housing,” which she described as stacked townhomes and condos with at least two bedrooms.
“We’re designing more and more two-bedroom floorplans but with smaller square footages so that we can have affordability. They’ll have smaller square footages, but more bedrooms with more convertible spaces, like dens converted into bedrooms, or flex space converted into a pullout couch. More options and more flexibility in floorplans will be a trend next year in the GTA.”