The following is a guest column by Ben Myers, Senior VP Market Research and Analytics at Fortress Real Developments. Fortress Real Developments partners with builders and developers across Canada and Ben assists in evaluating the market and projects that Fortress engages in.
It’s that time of year again — the time of year when economists, analysts, financial prognosticators, developers, realtors and your next door neighbour make their annual Canadian housing forecasts. Economists will likely forecast a “regression to the mean” in 2017, a figure closer to the long-run average. A developer or realtor will tell you “the market is going up and it is a great time to buy” (I promise not to say that). Perhaps a boisterous American will tell you that “Canada is worse than the US in 2008” and forecast a 40% price decline. Who do you side with?
Housing starts and new house prices can fluctuate rapidly up or down based on employment trends, immigration, mortgage credit availability, the confidence of construction lenders, the availability of new properties, trends in lot sizes and home sizes, the quality of interior features and finishes, and literally a million other factors. So presumably, the more you know and study these millions of factors, the better you should be at forecasting. The book I’m currently reading called the Undoing Project by Michael Lewis (The Big Short, Moneyball) includes a great quote from Daryl Morey, the analytics-driven general manager of the Houston Rockets: “Knowledge is literally prediction. Knowledge is anything that increases your ability to predict the outcome.” With that said, housing analysts should be better at predicting the outcome of a housing market than the general public. Are they?
As was the case in 2015 (see last year’s post), the general public isn’t as good at forecasting the housing market as housing analysts; let’s take a look. There were 197,915 housing starts in Canada in 2016, TD Economics forecast called for 197,000, and the point forecast from the general public surveyed on BuzzBuzzHome was 180,600. Economists at BMO, CIBC, RBC and Scotiabank were all better, the only dummies with worst forecasts were CMHC at 178,150 and Fortress Real Developments at 177,500 (I don’t want to talk about it). Twenty-nine per cent of BuzzBuzzHome voters called for starts above 195,000 last year, but I think the overall grade should still be a C- on housing starts.
The average new single-detached and semi-detached house in Canada completed in 2016 sold for $687,287 according to CMHC, an increase of 5.9% year-over-year. My Fortress forecast was for 5.7% annual growth, while your BuzzBuzzHome point forecast was for an increase of 1.4%. One-third of survey respondents expected price inflation of between 3% and 7% last year, so overall I would grade you a C.
In the Toronto Census Metropolitan Area (CMA), a total of 39,027 new housing units were started last year. TD Economics had called for 39,000 starts in 2016, while the BuzzBuzzHome survey respondents’ point forecast was 34,225, worse than the Fortress forecast, the Altus Group, Will Dunning Inc, CMHC (but better than the Conference Board of Canada). One-third of the general public forecasted 35,000 to 40,000 starts, but overall, I’m giving you another C- on your report card.
According to Altus Data Solutions, the average “asking price” for a new low-rise housing unit in the GTA has increased by 19.5% annually, following a 17.6% jump in 2015. However, what I was asking for was the increase in the price of new homes that are SOLD — so the average CMHC price for absorbed single-detached and semi-detached houses (FYI: increased by 13.9% in 2015). The average completed single and semis went for $975,947 in 2016, an annual increase of just 2.6% year-over-year. The point forecast for the general public: 2.7%! Only 16% of BuzzBuzzHome respondents thought prices would fall in the range of 0 to 3% growth. I’ll ignore that last fact, and give you your first A! Congrats.
In the Calgary CMA, housing starts declined to 9,245 in 2016, the lowest level since 2009. CMHC called for 10,000 starts, while my Fortress forecast was 10,600. Your point forecast was 11,400, however 44% of respondents expected starts below 10,000, therefore I think a B is an appropriate grade.
In 2015, the average price of a completed and sold single-detached or semi-detached house in the Calgary CMA increased by 16.6% from $632,126 to $736,843. The trend was reversed in a big way in 2016, with prices declining 8.4% year-over-year to $675,071. The point forecast from the general public called for a 2.7% decline, similar to my Fortress forecast of a 2.8% drop, while CMHC was more bearish expecting a 3.4% decrease. Exactly 50% of BuzzBuzzHome respondents expected a decline of 5% or more, and this exposes the fault in how I calculate the point forecast, so I’ll grade you a B+ (and make adjustments to the survey ranges).
You were much better in 2016 than 2015 with A, B, B+, C, C-, C- on your report card based on last year’s market versus B-, C+, C, C-, D, F based on the market in 2015. However, as a whole, you are not smarter than a housing analyst. Care to try again? Take the poll below:
If you’re feeling really ambitious, here are a couple more questions I’m asking for my next Market Manuscript housing report: click here.
Fortress Real Developments partners with builders and developers across Canada, and Ben assists in evaluating the market and projects that Fortress engages in (Twitter: @benmyers29). Follow his blog posts and commentary on the Canadian Housing Market at www.fortressrealdevelopments.com/news.