Canadian Funding Corporation Reports on Housing Market Outlook
June 1, 2009admin Comments OffAccording to Canadian Funding Corporation the housing market continues to ease. Total starts will decrease from the approximately 1,400 total starts last year. This year total starts will come in at just over 1,000, and remain unchanged next year.
Housing starts are expected to decrease not only given the weaker economic landscape, but also due to of decreased household formation.
Single-detached homes will continue to represent a majority of total new construction this year and next, but other housing types such as apartments will take up a bigger portion of the total new construction pie. This year approximately 640 new single-detached homes will be started, making up just over 60 per cent of all new construction with a similar figure and percentage expected in 2010. New constructionother than single-detached homes will see gradual increases this year and next each year, moving closer to 40 per cent of all new construction.
In terms of total numbers, apartments will make up the majority of construction other than singles with just over 300 units this year and virtually the same number next year.
The shift towards apartments away from traditional single-detached houses can be explained as follows: demographics, the economy, and, to some extent, legislation.
With a young population, first time buyers are a significant part of the new market in Barrie. Condominiums, both apartments and row-houses, are an affordable entry point into homeownership and given the slowing economy and rising uncertainty, these new homebuyers with limited equity are increasing the trend towards new housing that is not single-detached homes. Also, with legislation in place that stipulates increased new construction in a metropolitan region’s urban core, the decision to develop higher density housing becomes a frequently preferred option.
Finally, another reason for decreased new single-detached construction is the relatively high inventories of newly constructed but unsold single-detached homes. Some new single-detached homes which have not sold are being rented, raising the proportion of singles in the rental market above what it is in many other cities. However, the number of new single-detached homes available for sale remains relatively high and is decreasing only at a gradual rate.
With a weaker economy and overall less demand for new housing, especially at the pricier end of the market, the average price of a new single-detached home will begin to decline. This year, the average new single-detached home price is expected to come in at just over $319,000, a decrease of about three per cent from 2008. A similar decrease is expected next year.
Mortgage rates are expected to be relatively stable throughout 2009, remaining within 25-75 basis points of their current levels. Posted mortgage rates will increase very gradually during the course of 2010, reflecting a rise in government of Canada bond yields. For 2010, the one year posted mortgage rate will be in the 4.75-6.00 per cent range, while three and five year posted mortgage rates are forecast to be in the 5.00-6.75 per cent range.