Short of a downturn, Canada Mortgage and Housing Corporation (CMHC) has forecast ‘moderation’ in Toronto’s housing market in 2019 and 2020, according to its latest Housing Market Outlook.
The federal agency says the local housing market can expect lower sales, slower home starts, higher inventories of homes for sale, and slightly lower home prices compared to the recent market highs experienced.
“New home starts in the Greater Toronto Area (GTA) are expected to slow considerably throughout the forecast horizon mainly due to fewer single-detached home starts,” reads the report.
“Low rise new home sales (particularly single-detached homes) have trended lower in recent years and townhomes have begun to fill the void created through a lack of single-detached home starts. Higher house prices, a policy shift towards high-density construction and shortages of serviceable land are key reasons behind fewer site openings in the recent past.”
As of August 2018, the total number of units in the construction phase of the Toronto area reached over 71,000 units, marking the second highest level on record.
Condominium starts will remain strong and continue to dominate construction, but it will be lower over the next two years compared to 2018. Pre-construction sales have been trending downwards due to newer resale alternatives, an increase in resale supply, less investor demand, and a declining number of site openings.
There are also rising labour and material construction costs, with projects competing for a limited pool of construction workers and equipment, especially large machinery.
“The finite number of skilled labour and resources involved in current projects under construction will need to be reallocated to new projects and that may pose some challenges in the short term as many of these projects are large in scale and will take long to complete,” continues the report.
“Lengthy construction delays or project cancellations as a result of financing constraints may also pose downside risks to the forecast and pull down total starts to the lower boundary of the range.”
Moreover, home prices in the region will be more in-line with inflation because of balanced market conditions, although the condominium market will still be within the sellers’ market territory.
As for the rental market, it is forecast to remain heated at a low vacancy rate, with less people aiming for homeownership due to high prices and higher than expected immigration. New purpose-built supply in the rental market in 2020 is expected to provide some relief.
“With vacancy rates expected to remain at historically low levels, landlords will continue to have an upper hand in dictating rents. Therefore, expect rent levels to be high over the forecast horizon,” adds the report.