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2001 - A RECORD PERFORMANCE FOR HOUSING This is the best recession I’ve ever been in! Despite the gloomy economic news housing in the GTA continues to produce spectacular results. The resale market posted record sales of 67, 612 units, 16% over year 2000 and the best year ever! Average MLS price climbed to $251,508., the first time in a decade over $250,000. Listing supply declined to 14,179 units creating a very tight market condition for the New Year. The new home market results for the year end are not yet complete but will be very close to year 2000 numbers of 41,475 - a vastly superior performance to our earlier projections. The combined absorption of nearly 110,000 housing units, both new and resale, has never been close to this level before. That’s 7.4% of all households in the GTA - a remarkable absorption of product. In 1991 this absorption rate was just 2.2%. Early last year amidst signals of impending economic doom I had projected a 10% to 12% decline in new and resale activity. Historically, housing is the first big ticket item severely impacted by impending recession. But this has not been a typically consumer driven correction - this has been a capital investment and inventory correction. The consumer has remained almost stubbornly resilient. The impact on unemployment has not been, as yet, as severe as previous recessions. The massive cuts to interest rates has created unprecedented affordability. The rental vacancy rate is the lowest on record causing new household formations to move to ownership opportunities. Finally the unintended consequence of September 11th created an emotional tug towards housing. These factors combined to cause the housing market to behave in a contrarian fashion to the general economics trends. The question for most market watchers is, will this strong housing scene continue? In true consulting form the answer is both yes and no. The first half of 2002 should produce continued buoyant results. Resale supply is very low which should continue to put upward pressure on prices. Watch average MLS top $265,000 in the first quarter. The new housing scene will be fuelled by record low interest rates and upward pressure on prices caused by constricted land and material supply. At the same time unemployment levels will edge upward to 8.5% with a further loss of 50,000 jobs. The impact of this employment correction may not be felt until the second half of the year. Furthermore economic recovery will be more easily defined and captured by the third quarter pushing interest rates upward. Housing reacts well to upward movements of rates in the short term but demand is affected by affordability in the longer term. Compounding the GTA new housing scene is a projected shortage of serviced lots in mid to late 2002. So it’s a first half/second half year. The first half continuing the current trend of a booming housing scene. The second half correcting moderately to rising rates, upward price pressures and the inevitable impact on affordability. In the end the 2002 market may not top an absorption level of over 100,000 units – but it will come very close. Keep Positive!
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