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From Recession to Recovery to... What?
 

From Recession to Recovery to... What?

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Charting the Housing Market's Course in 2010/2011.

Charting the Housing Market's Course in 2010/2011.
Presented by Jason Mercer, Senior Manager of Market Analysis at Realtor Quest 2010.

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    From Recession to Recovery to... What? From Recession to Recovery to... What? Presentation Transcript

    • REALTOR® QUEST 2010From Recession to Recovery to… What?: Charting the Housing Market’s Course in 2010/2011Presented by: Jason Mercer, Senior Manager of Market Analysis Proud Sponsor of the Learning Quest 2010 Seminar Series
    • Part 1: Bubbles – Some Mythsand RealitiesPart 2: Market DriversPart 3: 2010 / 2011 OutlookPart4: The Long-Term ViewPart 5: TREB Member Resources
    • Average Price Continues to Rise…BIG TROUBLE???Average MLS® Selling Price - GTA500,000450,000400,000350,000300,000250,000200,000150,000100,000 50,000 0Source: Toronto Real Estate Board
    • Average Price Continues to Rise…BIG TROUBLE??? Real price is back where it was in 1989! Must be aAverage MLS® Selling Price - GTA bubble, right?500,000450,000 MLS® Average Price (Nominal)400,000 MLS® Average Price (Inflation Adjusted)350,000300,000250,000200,000150,000100,000 50,000 0Source: Toronto Real Estate Board
    • Average Price Continues to Rise…BIG TROUBLE??? Price is back where it was in 1989! Must be a bubble,Average MLS® Selling Price - GTA right?500,000 Tough to Make450,000 MLS® Average Price (Nominal)400,000 MLS® Average Price (Inflation Adjusted)350,000300,000 this Argument250,000200,000150,000100,000 50,000 - Price on its own tells us nothing 0Source: Toronto Real Estate Board
    • What about price-to-income ratios?Ratio of Average GTA MLS® Price to Getting close toAverage GTA Household Income the 1989 peak. 5 Evidence of a bubble?4.5 43.5 32.5Source: TREB; Statistics Canada
    • What about price-to-income ratios?Ratio of Average GTA MLS® Price to Getting close toAverage GTA Household Income the 1989 peak. Tough to Make 5 Evidence of a bubble?4.5 this Argument 43.5 32.5 - Mortgage Rates Would Have to be ConstantSource: TREB; Statistics Canada
    • By and Large We Pay for Homes Using a MortgageAverage 5-Year Fixed Mortgage Rate: Historic & Forecast22%17%12% 7% 2%Source: Statistics Canada
    • Mortgage Principal and Interest a better indicatorAverage Principal and Interest Payment (P&I)Inflation Adjusted (2009 Dollars)60,00050,000 GTA Real P&I40,00030,00020,00010,000 NOTE: Assumes 20 per cent down payment and a mortgage amortized over 25 years using the average 5-year fixed mortgage rate. 0 1959 1962 1965 1971 1974 1977 1986 1989 1992 2001 2004 1953 1956 1968 1980 1983 1995 1998 2007Source: Toronto Real Estate Board, Statistics Canada
    • Mortgage Principal and Interest a better indicatorAverage Principal and Interest Payment (P&I)Inflation Adjusted (2009 Dollars)60,00050,000 GTA Real P&I40,000 Can Real P&I30,00020,00010,000 NOTE: Assumes 20 per cent down payment and a mortgage amortized over 25 years using the average 5-year fixed mortgage rate. 0 1959 1962 1965 1971 1974 1977 1986 1989 1992 2001 2004 1953 1956 1968 1980 1983 1995 1998 2007Source: Toronto Real Estate Board, Statistics Canada
    • Mortgage Principal and Interest a better indicatorAverage Principal and Interest Payment (P&I)Inflation Adjusted (2009 Dollars)60,000 GTA Real P&I50,000 Can Real P&I40,000 GVA Real P&I30,00020,00010,000 NOTE: Assumes 20 per cent down payment and a mortgage amortized over 25 years using the average 5-year fixed mortgage rate. 0 1959 1962 1965 1971 1974 1977 1986 1989 1992 2001 2004 1953 1956 1968 1980 1983 1995 1998 2007Source: Toronto Real Estate Board, Statistics Canada
    • Income – The Final Piece of the PuzzleToronto CMA Average Household Income$100,000 $90,000 $80,000 $70,000 $60,000 $50,000Source: Statistics Canada; TREB Estimates and Forecast
    • Share of Income Used for Mortgage Principal & InterestMortgage Principal & Interestas Share of Average Household Income50%45% GTA40%35%30%25%20% NOTE: P&I calculation assumes 20 per cent down payment and a mortgage amortized over 25 years using the15% average 5-year fixed mortgage rate. Average household income based on the Census of Canada and the Statistics Canada Labour Force Survey.10%Source: TREB; Statistics Canada
    • Share of Income Used for Mortgage Principal & InterestMortgage Principal & Interestas Share of Average Household Income50%45% GTA40% Canada35%30%25%20% NOTE: P&I calculation assumes 20 per cent down payment and a mortgage amortized over 25 years using the15% average 5-year fixed mortgage rate. Average household income based on the Census of Canada and the Statistics Canada Labour Force Survey.10%Source: TREB; Statistics Canada
    • Share of Income Used for Mortgage Principal & InterestMortgage Principal & Interestas Share of Average Household Income50% GTA45% Vancouver40%35% Canada30%25%20% NOTE: P&I calculation assumes 20 per cent down payment and a mortgage amortized over 25 years using the15% average 5-year fixed mortgage rate. Average household income based on the Census of Canada and the Statistics Canada Labour Force Survey.10%Source: TREB; Statistics Canada
    • Affordability: Share of Income Used for Housing PaymentsTREB Affordability IndicatorShare of Average Household Income Used for Mortgage Principal and Interest,Property Taxes and Utilities on the Averaged Priced GTA Resale Home55% NOTE: P&I calculation assumes 20 per cent down payment and a mortgage amortized over 25 years using the average 5-year fixed50% 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 PaymentsTREB Affordability IndicatorShare of Average Household Income Used for Mortgage Principal and Interest,Property Taxes and Utilities on the Averaged Priced GTA Resale Home55% NOTE: P&I calculation assumes 20 per cent down payment and a mortgage amortized over 25 years using the average 5-year fixed50% 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 PaymentsTREB Affordability IndicatorShare of Average Household Income Used for Mortgage Principal and Interest,Property Taxes and Utilities on the Averaged Priced GTA Resale Home55% What if we assumed 20 per cent down payment and a NOTE: P&I calculation assumes that the GDS Ratio mortgage amortized over 25 years using the average 5-year fixed50% had to remain at 32%, income based on the Census of mortgage rate. Average household with the average Canada and the Statistics Canada Labour Force Survey.45% home price having to adjust to make up for changes in interest rates, income etc.?40%35%30%25%Source: Toronto Real Estate Board Data and Calculation; Statistics Canada
    • Concept of Justified Price…Suggests No Bubble Right NowActual GTA MLS® Price vs.Average Price Justified by Constant 32% GDS Ratio$500,000$450,000 Actual GTA Average MLS® Price$400,000$350,000$300,000$250,000$200,000$150,000$100,000Source: TREB, Statistics Canada
    • Concept of Justified Price…Suggests No Bubble Right NowActual GTA MLS® Price vs.Average Price Justified by Constant 32% GDS Ratio$500,000 LTT Justified Average MLS® Price Assuming a Constant GDS Ratio$450,000 of 32 Per cent$400,000 Actual GTA Average MLS® Price$350,000$300,000 Bubble$250,000$200,000$150,000$100,000Source: TREB, Statistics Canada
    • Part 1: Bubbles – Some Mythsand RealitiesPart 2: Market DriversPart 3: 2010 / 2011 OutlookPart4: The Long-Term ViewPart 5: TREB Member Resources
    • Components of Affordability? ? ? ?Mortgage Rates Hhld Income Taxes & Utilities Average Price
    • Economic Recovery is Underway in CanadaCanadian Real GDP, MonthlyMonth-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 2010Canadian Real GDP, QuarterlyAnnualized 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 TargetCanadian Consumer Price Index (CPI)Year-Over-Year Per Cent Change 4% 3% 2% 1% 0% CPI Annual Per Cent Change-1% Core CPI (Bank of Canada) Annual Per Cent Change-2%Source: Statistics Canada
    • Bank of Canada Will Increase the Overnight RateBank of CanadaTarget for the Overnight Lending Rate6%5%4%3%2%1%0%Source: Bank of Canada; TREB Forecast
    • Slope of Yield Curve ChangingCanadian Government of Canada Bill/Bond Yield CurveSpot and Derived Forward Rates 4.50% 4.00% 3.50%Bill/Bond Yield 3.00% 2.50% 2.00% 1.50% Spot (May 5, 2010) 1.00% December 2010 Forward Curve 0.50% December 2011 Forward Curve 0.00% Source: Bank of Canada; TREB Forward Rate Calculations
    • Variable and Fixed Mortgage Rates Will Increase DisproportionatelyPrime Rate and 5-Year Fixed Mortgage RateHistoric and 2010 Forecast 9 8 7 6Per Cent 5 4 3 Average 5-Year Fixed Mortgage Rate 2 Prime Rate 1 0 Jul-00 Jul-01 Jul-03 Jul-04 Jul-06 Jul-08 Jul-09 Jul-11 Jul-02 Jul-05 Jul-07 Jul-10 Jan-00 Jan-02 Jan-03 Jan-05 Jan-07 Jan-08 Jan-10 Jan-11 Jan-01 Jan-04 Jan-06 Jan-09Source: Bank of Canada; TREB Forecast
    • Rates Will Still Be Very, Very Low HistoricallyAverage 5-Year Fixed Mortgage Rate: Historic & Forecast22%17%12% 7% 2%Source: Statistics Canada; TREB Forecast
    • Components of AffordabilityMortgage Rates ? ? ? Hhld Income Taxes & Utilities Average Price
    • GTA Employment Will Improve in 2010 & 2011Toronto CMA EmploymentActual and Annual Per Cent Change 3,050 4% Employment Annual Per cent Change 3,000 3%Actual Employment (,000s) 2,950 2,900 2% 2,850 1% 2,800 0% 2,750 Annual Per Cent Change 2,700 -1% GTA Average Employment 2,650 -2%Source: Statistics Canada, TREB Forecast
    • GTA Unemployment Will Be Above Average in 2010Toronto CMA Unemployment Rate(Seasonally Adjusted)11%10% 9% 8% 7% 6% 5%Source: Statistics Canada; TREB Forecast
    • Earnings Will Trend UpwardToronto CMA Average Weekly Earnings(Seasonally Adjusted)$900$880$860$840$820$800$780$760$740Source: Statistics Canada; TREB Forecast
    • Household Income Growth Picking Up in 2011Toronto CMA Average Household Income$100,000 $90,000 $80,000 $70,000 $60,000 $50,000Source: Statistics Canada; TREB Estimates and Forecast
    • Components of AffordabilityMortgage Rates Hhld Income Up Slowly ? ? Taxes & Utilities Average Price
    • Components of AffordabilityMortgage Rates Hhld Income Up Slowly Taxes & Utilities ? Average Price
    • Part 1: Bubbles – Some Mythsand RealitiesPart 2: Market DriversPart 3: 2010 / 2011 OutlookPart4: The Long-Term ViewPart 5: TREB Member Resources
    • MLS® Sales Remaining Strong but Edging LowerTREB MLS® Annualized Sales/Listings Trend:Historic & Forecast 100%Sales/Listings Trend (Annualized) 190,000 MLS Sales 90% Sales-to-New Listings Ratio 170,000 80% 150,000 70% 130,000 60% 110,000 50% 90,000 40% 70,000 30% 50,000 20%Source: Toronto Real Estate Board
    • More Home Owners Will ListTREB MLS® Annualized Sales/Listings Trend:Historic & Forecast MLS Sales 100%Sales/Listings Trend (Annualized) 190,000 MLS New Listings 90% Sales-to-New Listings Ratio 170,000 Sales-to-New Listings Ratio 80% 150,000 70% 130,000 60% 110,000 50% 90,000 40% 70,000 30% 50,000 20%Source: Toronto Real Estate Board
    • Market Conditions Not as Tight in 2010TREB MLS® Annualized Sales/Listings Trend:Historic & Forecast MLS Sales 100%Sales/Listings Trend (Annualized) 190,000 MLS New Listings 90% Sales-to-New Listings Ratio 170,000 Sales-to-New Listings Ratio 80% 150,000 70% 130,000 60% 110,000 50% 90,000 40% 70,000 30% 50,000 20%Source: Toronto Real Estate Board
    • After Very Strong Price Growth in 2009 & Q1 2010TREB MLS® Average Price Trend: Historic & Forecast450,000400,000350,000300,000250,000200,000Source: Toronto Real Estate Board
    • …the Average Price Trend Will FlattenTREB MLS® Average Price Trend: Historic & Forecast450,000400,000350,000300,000250,000200,000Source: Toronto Real Estate Board
    • Components of AffordabilityMortgage Hhld Taxes & Average Rates Income Utilities Price Up Up Up Up Slowly Slowly
    • The Cost of Home Ownership Will RiseTREB Affordability IndicatorShare of Average Household Income Used for Mortgage Principal and Interest,Property Taxes and Utilities on the Averaged Priced GTA Resale Home55% NOTE: P&I calculation assumes 20 per cent down payment and a mortgage amortized over 25 years using the average 5-year fixed50% 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 LineActual GTA MLS® Price vs.Average Price Justified by Constant 32% GDS Ratio$500,000 Justified Average MLS® Price Assuming a Constant GDS Ratio$450,000 of 32 Per cent$400,000 Actual GTA Average MLS® Price$350,000$300,000$250,000$200,000$150,000$100,000Source: TREB, Statistics Canada
    • Part 1: Bubbles – Some Mythsand RealitiesPart 2: Market DriversPart 3: 2010 / 2011 OutlookPart4: The Long-Term ViewPart 5: TREB Member Resources
    • Immigration Drives Population Growth
    • GTA Most Diverse Metropolitan Area in the WorldShare of Foreign-Born Populationin Major Metropolitan Areas Toronto Vancouver Miami Los Angeles Sydney Melbourne New York City MontrealWashington DC 0% 10% 20% 30% 40% 50%Source: Adapted from Statistics Canada, 2006 Census Analysis Series
    • Sustained Population Growth is ProjectedToronto CMA PopulationHistoric and Projected10,000,000 8,000,000 6,000,000 4,000,000 Historic Toronto CMA Population 2,000,000 Projected Toronto CMA Publication 0Source: Statistics Canada, Ontario Ministry of Finance Projection
    • MLS® Sales Will Follow Population Trend – Long TermGTA MLS® SalesHistoric and Projected140,000120,000100,000 80,000 Actual Existing Home Sales 60,000 Historic Trend 40,000 Long-Term Sales Projection 20,000 0Source: Statistics Canada, Ontario Ministry of Finance Projection
    • Part 1: Bubbles – Some Mythsand RealitiesPart 2: Market DriversPart 3: 2010 / 2011 OutlookPart4: The Long-Term ViewPart 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?