Update* – Please check out my 3 Predictions for Mississauga Real Estate in 2017 where I specifically talk about what could happen in the Mississauga real estate market in 2017.
The Globe and Mail had this prediction for 2016 and 2017 in regards to the Toronto real estate market:
The soaring cost of home ownership will finally begin to weigh on the Toronto housing market. Housing starts should drop by 5 per cent next year and fall another 10 per cent in 2017. Much of that will come from fewer new detached homes, with multifamily construction making up almost two-thirds of new homes under construction in 2017. Existing home sales, which are on track to hit 100,000 this year, will drop to 87,500 by 2017 as more prospective first-time buyers find they’re priced out of the market.
What does this mean for the Mississauga real estate market in 2016-2017?
While the news focuses on Canada as a whole, the GTA is an entirely different beast. Therefore, you can’t lump it in with the rest of the country and you need to analyze it separately.
When looking at GTA real estate market we know that the level of demand in Mississauga is not at the insane levels as it is in the hyper-competitive Toronto real estate market. However, Mississauga is one of Toronto’s closest neighbours and most attractive alternative options especially for first time buyers and young families and demand here is still extremely high.
A Quick Look at the Numbers
Average Price of Detached Home Q3 2015:
Toronto = $1,019,759
Mississauga = ~$800,000
Note – At the end of October 2016 (this post was originally written in Dec 2015), the average price for a detached home in Toronto was over $1.3 million and was ~$950K in the 905.
How quickly are homes selling in Mississauga?
Detached = 19 DOM (days on market)
All Other Home Types = 23 DOM
The trend continues as the average DOM (days on market) continues to fall in Mississauga and the average price continues to rise. Will that hold true next year as well or are we looking at a correction in the new year?
3 Predictions for Mississauga Real Estate Market in 2016 and 2017
1) Prices Will Go UP
Ok, I know this isn’t the boldest of predictions, but for years everyone and their mother has been predicting a housing crash. And every year passes and it just isn’t coming.
So, the question on everyone’s mind every year is…is this the year? Well, sorry to break it to you but no it’s not.
Prices Up, But By How Much?
Update: As of the end of November 2016, year to date gains across all segments equals a whopping 14.6%. So, what will the increases look like in 2017?
I believe that prices will continue to rise rapidly with a further tightening of available listings. I do think that there will be some other factors that will help control prices compared to 2016’s robust growth, so I’ve pegged growth in Mississauga at about 8%-10% in 2017.
With that said, in 2017 prices could also be affected more significantly by…
2) There will be another significant mortgage rule change
In 2015, the Liberal government moved to make the most significant change in mortgage conditions since 2012 when the amortization rate was dropped from a maximum of 30 years to 25 years for houses purchased with less than 20% down.
Dirty Math Time
A $600,000 home at 5% would normally be a $30,000 downpayment. With the new rules it would make it $35,000 down. That’s $500,000 at 5% ($25K) + $100,000 at 10% ($10K).
Update on Prediction
As predicted, in October 2016 the federal government made a significant mortgage rule change which led to a flurry of activity in the year-end market.
The “Stress Test” as it is called, is now applied to all high-ratio mortgages (any purchase with less than 20% down). This means that anyone with less than 20% down HAS to qualify at the benchmark interest rate (currently 4.64%) versus just the rate their lender offers them (which could be in the 2.4%-2.6% range).
This change came into effect very quickly and left buyers scrambling to close transactions. The banks responded the next month by slightly raising their interest rates for the first time in a long while.
What kind of impact will this have on the market?
Many in the industry were quick to praise the government while others stated that it wasn’t enough to help cool the markets in places like Toronto and Vancouver.
My personal opinion? It won’t be as significant as people hope it might be and I don’t believe the government intended it to be that a huge of an impact at first. I think they’re planning to gauge the impact and set themselves up for another, larger change in 2017.
3) A significant announcement will be made regarding interest rates
There’s no doubt that historically low interest rates have largely fueled the real estate market in Canada over the past decade. And we’ve heard at times that the rates will change with speculation occurring largely after the latest round of mortgage changes in 2012. However, clearly nothing came from that.
With the first increase of the benchmark rate in years comes speculation that interest rates could rise soon.
But, don’t expect to see that happen in 2016. In fact, it looks like we’ll see rates possibly lowered even further and we’ll also see the growth of the private lending market as the big banks tighten their rules and who they lend to.
Update* – No interest rate changes came in 2016, however, banks began to slowly increase rates due to the mortgage rules changes. In early December 2016, the BoC again did not increase the benchmark rate.
With private lending joining the fold, it should push their rates lower which could keep things low for the foreseeable future. However, come the end of 2017, if things remain largely the same, I expect to see a rather significant step towards increasing rates.
Some of this will largely depend on what kind of shape our loonie and economy are in at that point, but if things are more stable then expect something big to happen. Either way you’re going to want to buy now. Don’t put the move off any sooner as prices are not coming down.