Economists optimistic recession is over

The outlook is brightening for the economy in general and the housing industry,
specifically, according to some recent reports. The major banks and some of the
larger real estate franchises say the recession in Canada is either over or soon
to be.

RE/MAX Ontario-Atlantic issued a good news reports that existing home sales are
up, with some markets moving into a seller’s market. And affordability has come
down toward more historical averages according to RBC Economics, putting
homeownership back in reach for many.

“Encouraged by recent government initiatives, home ownership in Ontario is

becoming a reality for an increasing number of younger purchasers,” says a recent
report by Royal LePage Real Estate Services. “Eighty-six per cent of potential
first-time buyers say low interest rates make them more likely to purchase a home;
81 per cent cite lower housing prices as a motivating factor; while 76 per cent
cite job security and 64 per cent say a stable economy is an important factor in
their decision to buy.”

Canada Mortgage and Housing Corporation (CMHC) is also predicting the worst of the
recession is over and that housing markets will stabilize across the country in
2010. “We are definitely seeing signs that the rate of economic retraction in
Canada and worldwide is slowing,” says Ted Tsiakopoulos, CMHC Regional Economist.
“However, Ontario is underperforming compared to the rest of the country due
largely to our ties with the United States. A sustainable Ontario economic
recovery will rely on improved US business and consumer spending and a pickup in
provincial exports which comprise a sizable share of Ontario’s GDP (gross domestic
product).”

In its third quarter Housing Market Outlook, CMHC is more bullish on new
construction prospects for Ontario in 2010 than resale housing. “Sales in resale
markets have overshot expectations in recent months,” says Tsiakopoulos. “New home
building is typically a lagging indicator that follows the resale trend so while
we are expecting a cool down in resales, we believe new housing starts will rise.”

Some of the reasons for the recent surge and expected decline in the resale market
include less demand as many prospective buyers rushed to get in before rates and
prices rise. Even though the Bank of Canada has made a commitment to keep short
term rates steady until spring, Tsiakopolous says bond yields which are tied to
mortgage rates are poised to increase. “We will likely see a one-quarter to one-
half percentage increase on five year rates,” he says.

Another factor that will impact affordability over the next year, particularly at
the upper end of the market, is the introduction of the Harmonized Sales Tax. “The
HST will not only affect the cost of new housing, but also other real estate
services such as commission and legal fees.”

For an average home priced at $302,354, OREA estimates that an HST could add
$1449.00 in new taxes to closing costs. In Ontario, the HST could add an estimated
$262 million in new taxes annually to residential resale real estate transactions.
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Although many economists and industry leaders are overwhelmingly positive about
the economic prospects for the next year, not everyone is buying into the
optimism. Mortgage broker, David O’Gorman says, “I don’t like to be a pessimist,
but I don’t see the rebound yet. Real estate has traditionally rebounded about 18
months after the stock markets bottom out. If that holds true this time, we have a
rocky year ahead.”
Housing markets to rebound in Ontario?
Yes, but moderately.

Here are a few details specific to Ontario from CMHC’s Q3 Housing Market Outlook
Report:

Single starts have started to recover and will continue to trend higher in the
second half of 2009. Single starts will reach 20,150 units this year before
stabilizing at 20,625 units in 2010. Multi-family home starts will also trend
higher in the remaining months of 2009, reaching 28,525 unit starts, down from
just shy of 44,000 units in 2008.

Ontario existing home sales have staged a remarkable come back this spring when
compared to activity in late 2008. The strong pace seen in the second quarter of
this year reflects, in part, activity that was delayed in the previous two
quarters and is not likely to be sustained. The level of sales will move back
closer in line with improving economic conditions. As a result, MLS® sales will
average 174,000 units this year. A gradual recovery in Ontario labour markets
combined with low mortgage rates will help stabilize existing home sales at
166,750 units in 2010.

After experiencing buyers market conditions in early 2009, Ontario resale markets
have tightened and balanced market conditions will be restored. As a result,
Ontario existing home prices will grow by 1.6 per cent and 0.8 per cent in 2009
and 2010, respectively.