January 8, 2011
As usual, our thanks to Stephen Dupuis, President and CEO of BILD (Building Industry and Land Development Association), for the following article.
Last year at this time, I offered my fearless forecast for the 2010 new housing market predicting a “respectable year ahead” and projecting sales of 29,000 units for the year. Looking back on my own forecast, I was off the mark by more than 20 per cent, and thankfully I was low.
As of the end of November, builders had already sold more than 35,000 new homes and condos and when the final RealNet Canada Inc. numbers come in, total sales will be approximately 37,500 units, which I would have to call very respectable.
In my own defence, I actually thought sales would be higher than 29,000 units, but not wanting to come across like a real estate promoter, I overruled my crystal ball, which was really showing 31,000 units for 2010. Even at that, my projection would still have been way off so I guess I must have underestimated the general strength of the economy and overestimated the impact the HST would have on the new housing market.
Looking ahead for this year, I see that all the industry forecasters have annual sales coming in much lower. Following this surprisingly good year, I think the experts might be right on the direction but far too pessimistic.
I am particularly buoyed by the most recent internal industry newsletter issued by Dr. Peter Andersen, consulting economist to the Canadian Home Builders’ Association, who notes that “we were too pessimistic a year ago. As we begin 2011, we can say that the housing market is in a healthy balance. Existing home sales are running at sustainable levels. Bubble worries are a thing of the past.”
Obviously, low interest rates have been key to the health of the housing market and, as Andersen points out, even though the Bank of Canada increased its rate three times last year, mortgage rates were barely affected and will continue to be “housing friendly” through the spring 2011 selling season. “A significantly higher mortgage rate environment is unlikely until 2012,” Andersen writes.
Whenever something is going good, there’s always somebody looking for the downside, and the conventional worry among the “half-full” analysts is with the level of household debt. On that point, Andersen states “the reality is that households can afford to carry their debt. The share of disposable income taken up by debt payments is close to a historic low and is on a downtrend. The ratio of debt to household net worth has been moving sideways. In addition, asset values have been increasing as fast as debt. The debt story will not be a problem until the debt service ratio is much higher than it is today.”
Of course, low interest rates are only helpful if consumers have confidence and that speaks to the broader economy, particularly employment, and on that score Andersen notes that Canada has experienced substantial fulltime job creation over the past 12 months. “The gains in adult male employment — a key indicator for both housing and renovation demand — since early 2010 have been particularly impressive,” he writes.
It’s worth noting that Andersen is not writing to homebuyers, but to homebuilders, who rely on his analysis to make investment decisions and business plans, and he’s obviously bullish. On that note, I believe that 2011 is going to be a healthy but not hyper year for the new housing market in the GTA. And I’m going with a forecast of 30,000 sales. If I’m wrong, I hope I’m low again.
To read past articles by Stephen Dupuis, click here!