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
Proud Sponsor of the Learning Quest 2010 Seminar Series
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???
Average MLS® Selling Price - GTA 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
Source: Toronto Real Estate Board
Average Price Continues to Rise…BIG TROUBLE???
Average MLS® Selling Price - GTA 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
Real price is back where it was in 1989! Must be a bubble, right?
MLS® Average Price (Nominal) MLS® Average Price (Inflation Adjusted)
Source: Toronto Real Estate Board
Average Price Continues to Rise…BIG TROUBLE???
Average MLS® Selling Price - GTA 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
Price is back where it was in 1989! Must be a bubble, right?
Tough to Make this Argument MLS® Average Price (Nominal)
MLS® Average Price (Inflation Adjusted)
- Price on its own tells us nothing
Source: Toronto Real Estate Board
What about price-to-income ratios?
Ratio of Average GTA MLS速 Price to Average GTA Household Income 5 4.5 4 3.5 3 2.5
Source: TREB; Statistics Canada
Getting close to the 1989 peak. Evidence of a bubble?
What about price-to-income ratios?
Ratio of Average GTA MLS速 Price to Average GTA Household Income 5 4.5 4 3.5 3 2.5
Getting close to the 1989 peak. Evidence of a bubble?
Tough to Make this Argument - Mortgage Rates Would Have to be Constant
Source: TREB; Statistics Canada
By and Large We Pay for Homes Using a Mortgage
Average 5-Year Fixed Mortgage Rate: Historic & Forecast 22% 17%
12% 7% 2%
Source: Statistics Canada
Mortgage Principal and Interest a better indicator
Average Principal and Interest Payment (P&I) Inflation Adjusted (2009 Dollars) 60,000 50,000
GTA Real P&I 40,000 30,000 20,000
10,000
Source: Toronto Real Estate Board, Statistics Canada
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1968
1965
1962
1959
1956
1953
0
1971
NOTE: Assumes 20 per cent down payment and a mortgage amortized over 25 years using the average 5-year fixed mortgage rate.
Mortgage Principal and Interest a better indicator
Average Principal and Interest Payment (P&I) Inflation Adjusted (2009 Dollars) 60,000 50,000
GTA Real P&I
40,000
Can Real P&I
30,000 20,000
10,000
Source: Toronto Real Estate Board, Statistics Canada
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1968
1965
1962
1959
1956
1953
0
1971
NOTE: Assumes 20 per cent down payment and a mortgage amortized over 25 years using the average 5-year fixed mortgage rate.
Mortgage Principal and Interest a better indicator
Average Principal and Interest Payment (P&I) Inflation Adjusted (2009 Dollars) 60,000 GTA Real P&I
50,000
Can Real P&I 40,000
GVA Real P&I
30,000 20,000
10,000
Source: Toronto Real Estate Board, Statistics Canada
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1968
1965
1962
1959
1956
1953
0
1971
NOTE: Assumes 20 per cent down payment and a mortgage amortized over 25 years using the average 5-year fixed mortgage rate.
Income – The Final Piece of the Puzzle
Toronto CMA Average Household Income $100,000 $90,000 $80,000 $70,000 $60,000 $50,000
Source: Statistics Canada; TREB Estimates and Forecast
Share of Income Used for Mortgage Principal & Interest
Mortgage Principal & Interest as Share of Average Household Income 50% 45% GTA
40% 35% 30% 25% 20% 15% 10%
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.
Source: TREB; Statistics Canada
Share of Income Used for Mortgage Principal & Interest
Mortgage Principal & Interest as Share of Average Household Income 50% 45% 40% 35%
GTA Canada
30% 25% 20% 15% 10%
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.
Source: TREB; Statistics Canada
Share of Income Used for Mortgage Principal & Interest
Mortgage Principal & Interest as Share of Average Household Income 50% 45% 40% 35%
GTA Vancouver Canada
30% 25% 20% 15% 10%
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.
Source: TREB; Statistics Canada
Affordability: Share of Income Used for Housing Payments
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
55% 50%
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.
45% 40% 35% 30% 25%
Source: Toronto Real Estate Board Data and Calculation; Statistics Canada
Affordability Can Be Broken Down by District
Affordability Can Be Broken Down by District
?
Affordability Can Be Broken Down by District
?
Affordability Can Be Broken Down by District
?
Affordability: Share of Income Used for Housing Payments
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
55% 50%
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.
45% 40% 35% 30% 25%
Source: Toronto Real Estate Board Data and Calculation; Statistics Canada
Affordability: Share of Income Used for Housing Payments
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
55% 50% 45% 40%
NOTE: if P&Iwe calculation assumes 20 per cent down payment and a What assumed that the GDS Ratio mortgage amortized over 25 years using the average 5-year fixed mortgage rate. Average the Census of had to remain athousehold 32%, income withbased theonaverage Canada and the Statistics Canada Labour Force Survey. home price having to adjust to make up for changes in interest rates, income etc.?
35% 30% 25%
Source: Toronto Real Estate Board Data and Calculation; Statistics Canada
Concept of Justified Price…Suggests No Bubble Right Now
Actual GTA MLS® Price vs. Average Price Justified by Constant 32% GDS Ratio $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000
Actual GTA Average MLS® Price
Source: TREB, Statistics Canada
Concept of Justified Price…Suggests No Bubble Right Now
Actual GTA MLS® Price vs. Average Price Justified by Constant 32% GDS Ratio $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000
LTT Justified Average MLS® Price Assuming a Constant GDS Ratio of 32 Per cent Actual GTA Average MLS® Price
Source: TREB, Statistics Canada
Bubble
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
Components of Affordability
? ? ? ? Mortgage Rates
Hhld Income
Taxes & Utilities
Average Price
Economic Recovery is Underway in Canada Canadian Real GDP, Monthly Month-Over-Month Per Cent Change 0.8% 0.4% 0.0% -0.4% -0.8% -1.2%
Source: Statistics Canada
GDP Growth Will Continue in 2010 Canadian Real GDP, Quarterly Annualized Quarter-Over-Quarter Per Cent Change 8% 6% 4% 2% 0% -2% -4% -6% -8%
Source: Statistics Canada; Bank of Canada Baseline Forecast
Components of GDP Growth
FACT: More than 60 per cent of Canadian GDP is accounted for by personal expenditure
Consumer Price Growth Hovering at BoC Target
Canadian Consumer Price Index (CPI) Year-Over-Year Per Cent Change 4% 3% 2% 1% 0% -1% -2%
Source: Statistics Canada
CPI Annual Per Cent Change Core CPI (Bank of Canada) Annual Per Cent Change
Bank of Canada Will Increase the Overnight Rate Bank of Canada Target for the Overnight Lending Rate 6% 5% 4% 3%
2% 1% 0%
Source: Bank of Canada; TREB Forecast
Slope of Yield Curve Changing
Bill/Bond Yield
Canadian Government of Canada Bill/Bond Yield Curve Spot and Derived Forward Rates 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00%
Source: Bank of Canada; TREB Forward Rate Calculations
Spot (May 5, 2010) December 2010 Forward Curve December 2011 Forward Curve
Variable and Fixed Mortgage Rates Will Increase Disproportionately
9 8 7 6 5 4 3 2 1 0
Average 5-Year Fixed Mortgage Rate Prime Rate
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
Per Cent
Prime Rate and 5-Year Fixed Mortgage Rate Historic and 2010 Forecast
Source: Bank of Canada; TREB Forecast
Rates Will Still Be Very, Very Low Historically Average 5-Year Fixed Mortgage Rate: Historic & Forecast 22% 17%
12% 7% 2%
Source: Statistics Canada; TREB Forecast
Components of Affordability
Mortgage Rates
? ? ? Hhld Income
Taxes & Utilities
Average Price
GTA Employment Will Improve in 2010 & 2011
3,050 3,000 2,950 2,900 2,850 2,800 2,750 2,700 2,650
4% 3% 2%
1% 0% Annual Per Cent Change
-1% GTA Average Employment
Source: Statistics Canada, TREB Forecast
-2%
Employment Annual Per cent Change
Actual Employment (,000s)
Toronto CMA Employment Actual and Annual Per Cent Change
GTA Unemployment Will Be Above Average in 2010
Toronto CMA Unemployment Rate (Seasonally Adjusted) 11% 10%
9% 8% 7% 6% 5%
Source: Statistics Canada; TREB Forecast
Earnings Will Trend Upward
Toronto CMA Average Weekly Earnings (Seasonally Adjusted) $900 $880 $860 $840 $820 $800 $780 $760 $740
Source: Statistics Canada; TREB Forecast
Household Income Growth Picking Up in 2011
Toronto CMA Average Household Income $100,000 $90,000 $80,000 $70,000 $60,000 $50,000
Source: Statistics Canada; TREB Estimates and Forecast
Components of Affordability
Mortgage Rates
Hhld Income Up Slowly
? ? Taxes & Utilities
Average Price
Components of Affordability
Mortgage Rates
Hhld Income Up Slowly
Taxes & Utilities
? Average Price
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
MLS速 Sales Remaining Strong but Edging Lower
190,000 170,000 150,000 130,000 110,000 90,000 70,000 50,000
MLS Sales
Source: Toronto Real Estate Board
100% 90% 80% 70% 60% 50% 40% 30% 20%
Sales-to-New Listings Ratio
Sales/Listings Trend (Annualized)
TREB MLS速 Annualized Sales/Listings Trend: Historic & Forecast
More Home Owners Will List
190,000 170,000 150,000 130,000 110,000 90,000 70,000 50,000
MLS Sales MLS New Listings Sales-to-New Listings Ratio
Source: Toronto Real Estate Board
100% 90% 80% 70% 60% 50% 40% 30% 20%
Sales-to-New Listings Ratio
Sales/Listings Trend (Annualized)
TREB MLS速 Annualized Sales/Listings Trend: Historic & Forecast
Market Conditions Not as Tight in 2010
190,000 170,000 150,000 130,000 110,000 90,000 70,000 50,000
MLS Sales MLS New Listings Sales-to-New Listings Ratio
Source: Toronto Real Estate Board
100% 90% 80% 70% 60% 50% 40% 30% 20%
Sales-to-New Listings Ratio
Sales/Listings Trend (Annualized)
TREB MLS速 Annualized Sales/Listings Trend: Historic & Forecast
After Very Strong Price Growth in 2009 & Q1 2010
TREB MLS速 Average Price Trend: Historic & Forecast 450,000 400,000 350,000 300,000 250,000 200,000
Source: Toronto Real Estate Board
…the Average Price Trend Will Flatten
TREB MLS® Average Price Trend: Historic & Forecast 450,000 400,000 350,000 300,000 250,000 200,000
Source: Toronto Real Estate Board
Components of Affordability
Mortgage Rates Up
Hhld Income Up Slowly
Taxes & Utilities Up
Average Price Up Slowly
The Cost of Home Ownership Will Rise 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
55% 50%
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.
45% 40% 35% 30% 25%
Source: Toronto Real Estate Board Data and Calculation; Statistics Canada
Average Price and Justified Price Will Move In Line
Actual GTA MLS速 Price vs. Average Price Justified by Constant 32% GDS Ratio $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000
Justified Average MLS速 Price Assuming a Constant GDS Ratio of 32 Per cent Actual GTA Average MLS速 Price
Source: TREB, Statistics Canada
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
Immigration Drives Population Growth
GTA Most Diverse Metropolitan Area in the World
Share of Foreign-Born Population in Major Metropolitan Areas Toronto Vancouver Miami Los Angeles Sydney
Melbourne New York City Montreal Washington DC 0%
10%
20%
30%
Source: Adapted from Statistics Canada, 2006 Census Analysis Series
40%
50%
Sustained Population Growth is Projected Toronto CMA Population Historic and Projected 10,000,000 8,000,000 6,000,000 4,000,000 Historic Toronto CMA Population
2,000,000 Projected Toronto CMA Publication
0
Source: Statistics Canada, Ontario Ministry of Finance Projection
MLS® Sales Will Follow Population Trend – Long Term
GTA MLS® Sales Historic and Projected 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0
Source: Statistics Canada, Ontario Ministry of Finance Projection
Actual Existing Home Sales Historic Trend Long-Term Sales Projection
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
TREB Housing Market Charts
TREB Housing Market Charts
TREB Housing Market Charts
TREB Housing Market Charts
TREB Economic Commentaries
TREB Economic Commentaries
TREB Economic Commentaries
TREB Economic Commentaries
Thank You! Any Questions?