Buyers Will Take Driver's Seat in 2006

Prospective home buyers will likely find 2006 a good year for house hunting in Toronto as bidding wars recede and the dizzying price gains of the past few years settle down, predicts one Bay Street economist.

Carl Gomez, economist at Toronto-Dominion Bank, says a better balance between buyers and sellers in 2006 means that potential purchasers will be in a stronger negotiating position compared with the situation in the past few years.

That's because a greater number of listings will give buyers a bigger and more varied selection of homes from which to choose, says Mr. Gomez in a bank report.

"Buyers will have the luxury of taking more time to find a home that is right for their needs, without fear of either losing out to another buyer due to a potential bidding war or simply being priced out of the market because they waited a little while longer to make a decision."

Housing affordability will still remain extremely attractive compared with historical levels, adds Mr. Gomez.

For example, the percentage of household income needed to service the costs of home ownership is expected to edge up to about 30.4 per cent this year from 29.9 per cent in 2005. That compares with an average figure of 32 per cent through the 1990s, the economist says.

Over all, these conditions create what Mr. Gomez calls "a soft landing" in Toronto's housing market for 2006.

While Canada's hot housing market is probably due for a protracted slowdown, Mr. Gomez says he doesn't see a bubble that's about to burst in the way that technology stocks imploded in 2000.

Mr. Gomez says Toronto's price gains have been built on factors such as solid affordability and strong job and income growth. By contrast, lots of speculative buying in the United States has fuelled run-ups in many markets there that may not be sustainable.

In Canada, high levels of immigration and net migration into big cities will support new-home building. At the same time, the wealth that existing homeowners have recently accumulated should remain "as safe as the foundations on which their homes are built," the economist says.

While a slowdown will likely lead to better supply and demand, outright price declines are unlikely in most cities, he says.

Looking at the longer term, Mr. Gomez says some observers are worried that, as the leading edge of the baby boom generation approaches retirement, housing prices could collapse as this group unloads their homes on a smaller pool of younger buyers.

But Mr. Gomez points out that not all baby boomers will retire at the same time. As the older boomers retire, the younger ones may be looking to trade up. That trend should keep the market in broadly in balance and prices stable over the next decade or so, he expects.