January/February 2010 - Market Forecast

IN REVIEW Most Forecasters never look back - that's because they don't want you to look at their 'near' misses. Our 2009 Forecast called for more sales than in 2008 (and we told you that would happen in the second half of the year)! Everyone else predicted sales at 2001 levels (a big time recession). Who was right? We also recommend that you review our ten year forecast made in 2007 whereby we said condo prices would double and the long term trend would be upwards with some pauses but not corrections along the way! WHAT TO LOOK FOR IN 2010 1) NO real estate ‘bubble’ this year!  Some doomsayers are falling back on this tact after the failed sales crash of 2009 forecast. For anyone who has studied real estate trends, it usually takes three years of double digit price increases to produce the effect. And in the condo market we have had about 8 months so far! 2) NO interest rate spikes this year. The Bank of Canada and Finance Minister are left with nothing but ‘moral suasion’ in an attempt to slow down this market. Our bank rates (variable) are not going higher until the U.S. raises theirs, and that wont’ be in 2010. Fixed rates could move slightly higher if Governments start heavy borrowing in Canadian markets to cover their deficits. 3) DON’T get sidetracked by Canadian real estate markets. Focus on the condo market - particularly downtown. The bad news about the U.S. market is really centered on 4 states and 21 counties. I was recently in South Florida. Miami condos are a disaster (as everyone knows) but 5 miles across the causeway in South Beach, the market is still going strong - no foreclosures and rising prices! Why? There was no SPEC construction and there is a limited supply of product. So what happens in Vegas stays in Vegas! And that too is real estate. 4) HST (JULY 1ST) will impact the real estate market. First it will bring sales forward from the second half of the year and secondly, a new tax always causes consumers to stop spending on everything for a period of time.  Remember the City Land Transfer tax and the introduction of the GST? After several months of complaining, Canadians will just get on with life, accept more taxes, and resume their spending habits. 5) Watch the average price per sq.ft. differential between the resale market and the new condo market. That will tell you where the investors are going. Seven years ago the differential was only $25 and investors poured into new projects. Over time the gap rose to about $150 per sq.ft. and investors moved back to the resale market. Investors returned to the new project market in the fall of 2009, when the differential had dropped to under $75. Today the average price for resale condos is about $500 and for new projects it is $600 per sq.ft. WHAT TO DO IN 2010 1) What are driving prices in this market are NOT cheap mortgage rates but rather a lack of listings and a race by buyers to purchase before the HST! Again this year will be made up of two markets. The first half of the year will be a sellers’ market. SELLERS should list NOW or be prepared to wait until 2011. 2) In the condo market over the past five years there have been very few buying opportunities. One presented itself in the first half of 2009. (We reported in our April Report of ’09 that the market had bottomed in the first week of February).The second opportunity for BUYERS will be this fall. Don’t expect prices to drop but do expect prices to stabilize and ‘multiple offer’ scenarios to drop significantly. Besides the HST, a significant number of new condo projects will be registering in the second half of the year and we expect an additional 2,000 units will come on the market from investors (that is about a 3-4 months’ supply) which will significantly reduce the listing shortage in the back end of the year. 3) BE A PLAYER IN THE ASSIGNMENT MARKET (buying and selling properties before they are registered) an often overlooked area by buyers and sellers. Sellers can bring their property to market earlier (and beat the slowdown in the latter half of the year) and buyers can escape from the ‘multiple offer’ frenzy and move in earlier. To be a PLAYER you need a knowledgeable realtor who knows how to structure the deal and you need a skilled lawyer who knows how to close the deal!

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