While the major gains may soon pass, don't expect a major bubble to burst with price declines, says Canadian Real Estate Association chief economist Gregory Klump. Especially, he adds, through June, when activity is expected to remain strong in Ontario.
Two factors will keep resale housing activity very strong over the first half of 2010 - low mortgage rates and a push by buyers to beat the introduction of a new harmonized sales tax (HST) on Canada Day, according to Klump. The interest rates, a factor throughout Canada, should remain low enough throughout the year to keep buyers active in Ontario, he says.
"Whether you're a move-up buyer or a first-time homebuyer, buyers all across Ontario are taking advantage of extremely low mortgage rates to get into the market," he says. Those buying more expensive homes though, are especially motivated in Ontario to purchase their property prior to July 1, when the new tax comes into play by combining the PST and GST.
It will be levied against professional services, many of which relate to the cost of the home. The largest damage will likely be the part of the tax on real estate commissions, which could cost homebuyers thousands of dollars more, worrying some in the real estate business.
"It's certainly not an insignificant amount for higher-priced homes," says Klump.
Thus, as that Canada Day deadline nears, it's likely home sales could see an increasing number of buyers hoping to beat those taxes. Those who might have been waiting until later in 2010 will likely be pushing up their schedule to take advantage of the savings.
But a larger factor in increasing home sales is that many people had been holding off on their Ontario home purchases up until recently. "Part of what we're seeing is the release of pent-up demand that built during the end of 2008 and early 2009 at the peak of uncertainty and the very depth of the recession," says Klump.
He says that demand will continue to be released into 2010, although it should begin to wane by July and beyond.
First-time homebuyers aren't expected to be as turned off by the new HST, however, and aren't likely to be too worried about any slight increases in mortgage rates, says Klump.
"Mortgage rates are anticipated to increase by a very small amount, so there's not going to be a sudden spike," he says. "First home-buying activity is expected to remain strong. In our view, the higher end of the market will be more affected by a slowdown in the second half of the year."
Supply is beginning to respond to the latest demand increases, which should have an impact on slowing price increases as well.
A more balanced market is expected in the second half of this year, says Klump, as new listings begin to rise again and demand expected to trend lower.
"With demand trending lower and listings trending higher, you'll be facing a more balanced market with smaller price increases," he says. On paper, the numbers of 2010 are still going to look much better than the recent past.
"Expect strong annual growth rates for existing homes sales and average price through the first quarter as we continue to make comparisons to the weak market conditions at the beginning of 2009," says Jason Mercer, a senior manager of market analysis for the Toronto Real Estate Board.
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The average price of a home this January hit $409,058 in the city, up 19 per cent compared with $343,632 in the same month last year, according to the Greater Toronto Realtors.