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Winnipeg Free Press - PRINT EDITION

TD predicts slump in city housing market

Homes overvalued nearly 10%: report

By: Murray McNeill

Posted: 12/23/2011 1:00 AM | Comments: 0 (including replies)

WINNIPEG house prices are overvalued by nearly 10 per cent and will undergo a modest correction over the next two years, according to a new housing report by TD Economics.

The bank says the Canadian housing market and most regional markets are in line for a correction in 2012 and 2013 as turbulent economic conditions and rising interest rates spook some homebuyers and dampen the demand for homes.

It pegs Winnipeg's average selling price at $241,000, and says it's overvalued by roughly nine per cent. It predicts the price will dip by 0.8 per cent to $238,800 in 2012 and by a further 1.4 per cent to $235,500 in 2013.

It also predicts mounting global economic concerns will send some local homebuyers scurrying to the sidelines in 2012, pushing down unit sales by 3.3 per cent to 11,800 units from an estimated 12,200 in 2011. And rising interest rates will keep them at that level for 2013, it adds.

That comes on the heels of an estimated 5.6 per cent increase in unit sales and a 5.3 per cent price hike in 2011, it says.

Thursday's forecast isn't as bleak as the one TD issued in July, when it was predicting prices and sales would both drop by about 7.8 per cent over 2012 and the first half of 2013.

The president of the Winnipeg Realtors Association wasn't buying the doom-and-gloom scenario back then, and he wasn't buying it on Thursday, either.

"I still think they're blowing smoke," Ralph Fyfe said. "I'm still of the mind the Winnipeg market is going to be very, very healthy in 2012."

Fyfe said he expects the average selling price to climb another three to four per cent next year. And he can't see sales declining, either, although he conceded a modest decline could occur in 2013 if interest rates increase.

Fyfe isn't the only one who doesn't think a price correction is in the cards for next year. A RE/Max forecast issued earlier this month also predicted a three per cent price increase for 2012.

Canada Mortgage and Housing Corp. predicted a 3.7 per cent hike in its last forecast, in November.

The new TD report says Winnipeg has enjoyed two consecutive years of "outsized" gains in prices, sales and housing starts, thanks to low interest rates, favourable economic conditions and affordable house prices.

It says the average Winnipeg household spends only about 16.9 per cent of its annual income on mortgage payments, which is nearly 10 percentage points below the national average.

It says positive net in-migration and low unemployment rates have also helped to stoke the demand for housing. But those positive influences will be overshadowed over the next couple of years by global economic turbulence, which will undermine consumer confidence, and rising interest rates, which will make homes less affordable.

While the bank is predicting tougher times ahead for Winnipeg's housing market, it paints an even bleaker picture for the Canadian housing market.

It says the national housing market will be caught up in a tug of war in 2012, with low interest rates pulling hard on one end of the rope and economic uncertainty and slow income and employment growth pulling on the other -- and the latter will win out.

Accordingly, sales are expected to fall by 2.4 per cent next year and 3.5 per cent in 2013, it said, while prices will suffer average declines of 1.9 per cent in 2012 and 3.6 per cent in 2013.

Regionally, it predicts the Calgary and Edmonton markets will weather the storm OK, but price corrections will sap the strength of the powerhouse markets in Toronto and Vancouver.

It says Saint John, which will record its fourth consecutive year of sales declines in 2011, is expected to see the best overall outcome for the period.

murray.mcneill@freepress.mb.ca

-- With files by Postmedia News

Republished from the Winnipeg Free Press print edition December 23, 2011 B6

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