Housing Market Outlook – Kitchener & Guelph Area (CMHC)

MARKET AT A GLANCE

* Existing home sales will stabilize at current levels throughout most of 2012
* New listings will remain high and the resale housing market will be balanced through
2012
* New home construction will be little changed next year
* Low mortgage rates and population growth will support housing demand.

RESALE HOMES MARKET

Stable resale markets through 2012

The resale market has stabilized somewhat in 2011 and this stability will continue into 2012. Sales will recover slightly in early to mid 2012 as government stimulus eases consumer reluctance to spend and lower mortgage rates and prices make housing purchases attractive. However, sales will drop off later in 2012 as the slower employment growth in 2012 make consumers more hesitant to buy. Overall, sales in 2012 will be little changed from 2011 levels, as a slowing economy is balanced by low long-term mortgage rates.

Activity among first-time buyers will rise early in 2012 and repeat buyer demand will continue but at a slightly reduced level. In Kitchener, lower first-time buyer demand reduced sales in 2011. The fall-off in sales of homes in the lower price ranges is consistent with a relative shift from first-time buyers to repeat buyers. With many first-time buyers having purchased homes early in 2010, they’re not a big factor in the market this year. In addition, employment for this group took longer to recover and many who found employment are still saving up for a down payment. Improved consumer attitudes and lower long term mortgage rates will support first time buyer demand by the early part of 2012.

The Guelph story is slightly different. The 2010 sales rebound in Guelph was not as strong as in Kitchener, as some buyers put their intentions to buy on hold as prices jumped. Sales will be marginally higher in 2011, with sales peaking in the third quarter. Sales in the fourth quarter will decline from this peak level before moving higher through the first three quarters of 2012.

More first-time buyers/fewer repeat Buyers

The first-time buyer story for Guelph will resemble the story in Kitchener. In 2012 with low mortgage rates and little price growth, first-time buyers who remained on the sidelines in 2011 will be looking to buy their first home. Mortgage rates will remain low throughout most of 2012, before beginning to increase later in 2012 and into 2013. Employment in the 15-24 age group has been slowly improving and households in this group will be better able to purchase a home in 2012. With little price growth expected in 2012, homes will remain within reach of many first-time buyers. Although first-time buyer demand will increase, the slowing economy will keep the number of first-time buyers below the strong level of 2010. Immigrants usually rent when they move to Canada, but move to homeownership within five years. Immigration was strong over the last several years and some of these households will now be ready to buy a home.

On the other hand, slowing equity gains will impact repeat buyers. With little price growth expected in 2012, equity gains will slow and some homeowners will remain on the sidelines in 2012. This will result in fewer repeat buyers.

Listings to remain High

New listings will remain at a high level. With fewer completions, fewer homeowners are listing their homes for sale to move into a newly completed home. On the other hand, the strong price growth in the first half of 2011 will continue to draw some homeowners to list their homes through the end of this year and early in 2012. But, with lower average prices in the latter part of 2011 and minimal price growth in 2012, potential repeat buyers may be discouraged from listing their home later in 2012. The increase in the stock of homes and in the population will put upward pressure on listings. As a result, overall, listings will be little changed from the 2011 level.

Little price Growth

Prices peaked in the second quarter of 2011, but have since come off this record. Prices will continue to decline through the end of this year, before beginning to increase again in 2012. With a higher percentage of repeat buyers, the average price in 2011 will increase by 5% in Kitchener and 2% in Guelph. For 2012, price growth is expected to be less than 1%. An increased number of first-time buyers, who usually buy lower-priced homes, will put downward pressure on the average price. While the resale market favoured sellers through the first three quarters of 2011, the market has become balanced in the latter part of this year and will continue to be balanced throughout most of 2012. A balanced resale market will put little upward pressure on prices.

Housing Market Outlook Kitchener and Guelph Fall 2011

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