Toronto House Prices Expected to Cool through Autumn

Toronto’s overheated real estate market is expected to cool through the fall and winter, which should ease bidding wars and lead to more moderate price increases into 2012, says a CMHC housing market outlook released Wednesday.

Affordability is becoming such a concern, especially in overheated markets like Toronto, that the report predicts higher demand for rental apartments and condos by aspiring first-time buyers who are finding themselves priced out of the market.

The average price for a Toronto home is expected to hit $463,500 by year-end, up 7.2% from last year.

Shaun Hildebrand, the federal housing agency’s Toronto market analyst, said most of the gains in the market have already occurred, thanks to two factors: low interest rates fuelling a surge of spring and early summer sales, and the rush by first-time buyers early in the year to beat the introduction of tighter lending rules.

“Prices will be treading water for the next few quarters,” he said. “We’re seeing sales levels start to moderate. We’re seeing new listings start to catch up to demand, and that’s going to create more balanced market conditions. Prices won’t be growing as quickly as they were.”

Hildebrand cautioned that the one sector most at risk of a downturn in coming months is high-end housing, especially if stock market volatility and global economic uncertainty starts translating into job losses.

The unusually high demand for upper-end homes has skewed the average Toronto home price higher than had been expected for the year, the report noted.

“With the recent heightened uncertainty in the global economy and financial markets, you could see reduced demand for bigger ticket items,” said Hildebrand. “We’re watching the August market numbers to see if that’s happening.”

New housing starts are also expected to slow somewhat in the fall before resuming their growth late next year, the report said.

CMHC revised its forecast for Ontario slightly upward, citing a rosier job picture and a stronger housing market than originally expected in the first half of this year.

Some 191,900 existing homes are expected to change hands by the end of this year, and new housing starts should hit 62,400 units, higher than had been expected.

Canada-wide, the average MLS price of a home is expected to be $365,400 this year and $372,500 in 2012.