Double-digit price growth expected in Toronto

Forecasts for the residential real estate market in the Toronto Census Metropolitan Area (CMA) and the Greater Toronto Area (GTA) look very robust for 2016. I summarized many of the key findings in my latest Market Manuscript report, a housing document published bi-annually by Fortress Real Developments that looks at hot button housing issues in Canada. The report also summarizes the success of housing forecasts from 2015 at a metro level, and what the real estate experts are predicting this year.

In 2015, the Canadian Mortgage and Housing Corp. (CMHC) forecast called for lowrise new home prices in the Toronto CMA to increase by 3.6 per cent annually. In reality, new single-detached and semi-detached house prices jumped 13.9 per cent year-over-year, according to CMHC numbers, while RealNet Canada Inc. indicated that asking prices for new lowrise homes overall increased by 17.6 per cent in 2015. I doubt very much that CMHC would publish a forecast calling for 15 per cent new home price growth, even if it thought it would occur. The government agency might get called out for enticing speculative investors, and would likely choose to publish a more conservative assessment of the market.

CMHC looks to be conservative again in 2016, calling for 4.6 per cent price growth in the new home market. When making my forecast, I took into consideration that unsold supply in the lowrise new housing market is near 20-year lows. My forecast for new lowrise house prices in the Toronto CMA is for a 12.5 per cent annual gain. Extremely low supply coupled with high demand is why I expect even higher prices.

The typical response is, “of course you’re going to predict high house prices, you’re in the development business!” This is why I produce the Market Manuscript on behalf of Fortress, I put my forecasts up against the independent third-party research firms and other highly trusted sources of housing analysis. I had the closest forecasts for housing starts, new home pricing, and resale pricing in 2015, topping industry stalwarts such as CMHC, The Altus Group, The Conference Board of Canada, Will Dunning Inc. and TD Economics.

The key to making successful forecasts is to understand the factors influencing supply and demand, and what sources of data and analysis to trust. Ryerson University’s Centre for Urban Research and Land Development has stated that there are shortages of serviced lots for lowrise housing in major suburban municipalities. The university has no skin the game here; it is the ultimate unbiased source. This supply problem is not one that gets solved in a year, and it may be a problem that never gets solved.

There are a lot of factors that are driving up housing demand, such as population growth and employment, the Toronto CMA added 75,000 new people and a whopping 137,000 new jobs last year. Toronto will only continue to be a top destination of affluent immigrants, and highly recruited university graduates,
putting greater pressure on single-detached, semi-detached and townhouse pricing.

To learn more about other factors influencing the supply and demand imbalances in Toronto and Canada, download my latest Market Manuscript housing report from Fortress Real Developments, and make sure your decision to buy a home in 2016 is an informed one.