DESPITE ECONOMIC UNCERTAINTY NEW HOME SALES VERY STRONG

I’m not going to read the Financial Post anymore! Well, maybe I’ll save it until after the Sports and Entertainment sections. The gloomy economic forecasts emanating from the business press is not showing up in the housing sector. To paraphrase Oscar Wilde – “I’d rather read of man’s triumphs than his failures”.
Both the new and resale markets continue to show amazing strength despite the impact of the slowing U.S. economy and the Hi-tech correction.

Re-Sale Market – Best Sales Ever
In May, 7,485 resale homes were sold through the Toronto Real Estate Board’s MLS system - the largest single month total in the Board’s 81-year history. TREB President, David Pearce, reported that, “May’s results are astounding, up 27% over the same month last year and well above the 6,607 sales recorded in March 1988 – which was our previous record”.

Listing supply is up in the 22,500 range providing a wide range of product opportunity. This is up significantly from early in 2001 but still well below a level of balance at about 25,000 units. This represents a seasonally adjusted supply of about five months. Well below the normal level of about eight months. This means that it is still a sellers market with demand continuing to out distance supply.
As a result prices continue to move upward but at a very reasonable and controlled pace. The average price climbed to $255,460 up 6.5% from year-end.
Listing supply should continue to move upward through the fall market causing prices to remain very stable through the balance of 2001.

New Home Sales Very Buoyant
A strong new home market in the GTA is reflected by the ratio of resale to new home sales. During the early 90’s in recessionary time this ratio expanded to as much as 5:l. In May this ratio was at 2:1. New Home sales were also up over last year by 3.5% to 3,737 units.

“ It’s no surprise that new home sales are remaining so buoyant”, said Patrick O’Hanlan, President of Greater Toronto Home Builders’ Association. Homebuyers are enjoying the convergence of intense competition among builders, unprecedented product choice in every location, low mortgage rates, and tremendous overall value. They are responding accordingly.”

Will This Buoyancy Continue?
The question being asked by builders, bankers, and buyers is whether this strong performance can continue. If you and I follow only the Financial Section the answer is less than positive. Can the GTA dodge the economic bullet of market forces that precipitate a slow down - absolutely not.

But slower is better! The resale market will come close to a record year in 2001 but increase supply and a softening of overall demand will keep the lid on prices. The new home industry has settled the vast majority of trade contracts and labour negotiations for the next three years – meaning controlled, predictable costs. A softening of demand means more assured delivery, on time, at a higher quality.

A pause in the economic surge of the last few years will be a long-term benefit for the consumer in more stable pricing. In the short term, the next six to eight months, the new home purchaser will be presented with an exceptional opportunity. As the economy pauses and corrects from an inventory clearance interest rates will rise. The level of rates – the barometer of monthly carrying costs – should moderate a little more in the next 60 days but begin to move upward by fall.

The new home industry is in the most competitive environment ever experienced. This means lots of product opportunity for the consumer. As the market demand pauses slightly through summer and early fall there will be some great deals available. Take advantage before the next surge in market activity expected early to mid next year.

Keep Positive!
PMA Brethour Group
Andrew Brethour
Marketing & Sales Consultant to the New Home Industry
andrewb@pmabrethour.com