Treb market update_condo_network_september_17_2010

TREB Market Update

Toronto Condo Network

Presented By: Jason Mercer, TREB Senior Manager of Market Analysis

September 17, 2010

Toronto Condo Network September 17, 2010

The Canadian economy continues to grow, albeit more slowly

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Source: Statistics Canada

Canadian Real GDP, QuarterlyAnnualized Quarter-Over-Quarter Per Cent Change


Job growth continues in Canada and the GTA…

2,200

2,400

2,600

2,800

3,000

Tho

usa

nd

s


Toronto CMA Employment (All Industries)Seasonally Adjusted


…but the unemployment rate remains high

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0


Toronto CMA Unemployment RateSeasonally Adjusted


Bank of Canada has increased its target for the Overnight Rate

0%

2%

4%

6%

8%

Source: Bank of Canada

Key Interest/Mortgage Rates Average 5-Year Fixed Mortgage Rate

Prime Rate

Target for Overnight Lending Rate


Bank of Canada has increased its target for the Overnight Rate

“Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated. Going forward, consumption growth is expected to remain solid and business investment to rise strongly.”

- Bank of Canada, September 8, 2010

(http://www.bankofcanada.ca/en/fixed-dates/2010/rate_080910.html)

http://www.bankofcanada.ca/en/fixed-dates/2010/rate_080910.html




Where does the market think rates are going?

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

Bill

/Bo

nd

Yie

ld

Source: Bank of Canada; TREB Forward Rate Calculations

Canadian Government of Canada Bill/Bond Yield CurveSpot and Derived Forward Rates

Dec-11

Dec-10

September 14, 2010

Short-Term Rates: Market pricing in two to three

additional hikes by the end of 2011

Longer-Term Rates: Less than half a percentage point (50 basis points) for

the five year bond.


Sales have come off record highs…should rebound, but no new records

Forecast Long-term sales trend based on

population growth

20,000

40,000

60,000

80,000

100,000

120,0001

98

7Q

1

19

88

Q1

19

89

Q1

19

90

Q1

19

91

Q1

19

92

Q1

19

93

Q1

19

94

Q1

19

95

Q1

19

96

Q1

19

97

Q1

19

98

Q1

19

99

Q1

20

00

Q1

20

01

Q1

20

02

Q1

20

03

Q1

20

04

Q1

20

05

Q1

20

06

Q1

20

07

Q1

20

08

Q1

20

09

Q1

20

10

Q1

20

11

Q1

Source: Toronto Real Estate Board

GTA Sales Trend (Annualized Rate)


What does this mean for condo apartment sales?

Forecast

0

5,000

10,000

15,000

20,000

25,000

30,000

1993

Q1

1994

Q1

1995

Q1

1996

Q1

1997

Q1

1998

Q1

1999

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1


Summary of Condominium Apartment SalesAnnualized Trend

24%

Condo Apt. Share of Total Sales 2010 Average

45%

15%

9%

31%

Share of Total Condo Apt. Sales by TREB Region

Central

East

North

West


Condo Apartment Share of Total Sales by TREB Region

60%

16%

11% 19%

Central Districts

North Districts

East Districts

West Districts


Is the current price level cause for concern?

$0

$100,000

$200,000

$300,000

$400,000

$500,000


Average GTA Selling Price

Real Average Price

Average Price


The average home remains affordable in the GTA

25%

30%

35%

40%

45%

50%

55%

Source: Toronto Real Estate Board Data and Calculation; Statistics Canada

TREB Affordability Indicator Share of Average Household Income Used for Mortgage Principal and Interest, Property Taxes and Utilities on the Averaged Priced GTA Resale Home

Assumes 20 per cent down payment, average five-year fixed mortgage rate, 25 year amortization period and the average household income in the GTA


Based on GDS rule of thumb, the average GTA home price is affordable

50,000

150,000

250,000

350,000

450,00019

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

10 Y

TD


Average vs. Justified Selling Price in GTA

Justified Average Selling Price basedon 32 per cent GDS

Actual Average Price

Shaded areas represent periods when, based on the 32% GDS rule of thumb, a mortgage on the average

priced home was not affordable


Condo Apartment Price Trend by TREB Region

$75,000

$125,000

$175,000

$225,000

$275,000

$325,000

$375,000


Median GTA Condo Apartment Prices

All Housing Types, All Areas

Central

Condo Apartments, All Areas

North

West

East

Median central condo prices close to GTA median for

ALL home types


Active listings for condo apartments have increased

0

5,000

10,000

15,000

20,000

25,000

30,000

Source: Toronto Real Estate Board; CMHC

Condominium Apartment Completions and

MLS® Active Listings (Annualized Trend)

Completions Active Listings

Regardless of the number of condo apartments under construction, 15,000 completions per year appears to be the upper threshold.


Increased listings could impact future price growth

-10%

-5%

0%

5%

10%

15%

20%

25%

0%

10%

20%

30%

40%

50%

60%

70%

An

nu

al Me

dian

Price

Gro

wth

Sale

s-to

-Act

ive

Lis

tin

gs r

atio


Condominium Apartment Sales-to-Active Listings Ratio and

Median Price Growth (All Areas)Annual Median Price Change (Right Scale)

Sales-to-Active Listings Ratio (Left Scale)


Summary Points

• The pace of economic recovery has slowed (not stalled). The Bank of Canada has more flexibility with the direction of interest rates. The market consensus is for fewer rate hikes than originall expected through the end of 2011.

• The average price level, on its own, does not tell us whether or not home prices will fall. Historically the best determinant of price growth or decline has been affordability. Right now affordability remains in check, thus the current average selling price is justified.

• The condo apartment market has tracked trends in the market as whole quite closely. The one wildcard for condos is new apartment completions, but the apparent ceiling on the number of completions each year will help mitigate the risk of a flood of listings into the market.