Toronto home prices will be higher by the end of this year, according to a forecast by the Canada Mortgage and Housing Corp.
An improving economy means the average home price will hit $384,120 by the end of 2009, up 1.1 per cent from the year before, the federal housing agency said yesterday.
CMHC's earlier estimate was for home prices to decrease to $360,000 by the end of this year.
"We're witnessing an unprecedented event, a V-shaped recovery in the housing market in the absence of a similar recovery in the greater economy," said Ted Tsiakopoulos, CMHC Ontario regional economist.
While 1.1 per cent is the smallest increase in more than a decade, it would mean that house prices will have gone up every year for the past 13.
"A lack of supply on the market not able to meet the level of demand basically put upward pressure on prices," said Shaun Hildebrand, senior market analyst with the CMHC.
Low interest rates and tight inventory have contributed to price pressure in the Toronto area. The inventory problems are expected to ease in the second half as more vendors place their homes on the market.
Greater affordability means more expensive single-detached homes were purchased in the second half of the year, skewing average prices upward in the Toronto area.
The luxury market has also staged something of a comeback, with a home selling in the upscale Bridle Path area for $11.8 million, the most expensive sale this year.
Economists caution that price appreciation may not continue.
"Sales are definitely running above trend and we will see adjustments as we move forward," Tsiakopoulos said. "We undershot in terms of sales during the peak of the crisis and we are overshooting in terms of demand right now."
Tsiakopoulos said job numbers remain particularly worrisome.
"Job growth is critical to help sustain this pace, and we really won't see employment gain traction till the back half of 2010," he said.
"The economic environment in Ontario is just not as robust as in other provinces."
Nationally, housing starts will see a surge in the second half of the year, says the federal housing authority in its quarterly outlook.
Starts are expected to hit 141,900 for the year and increase to 150,300 for 2010.
"Economic uncertainty and lower levels of employment tempered new housing construction in the first half of this year," said Bob Dugan, chief economist for the CMHC.
"In the second half of 2009 and 2010, we expect housing markets to strengthen."
In Ontario, Hamilton, Thunder Bay and Kitchener new home markets will enjoy the best growth prospects. Those cities are the strongest resale markets, according to the federal housing agency.
Meanwhile, high levels of affordability mean demand for detached housing will continue in the short term. However, a shift to more inexpensive multi-family housing is forecast next year as affordability erodes.
Existing home sales are expected to reach 420,700 units this year and remain slightly below that level next year.
CHMC said the average price of a home across Canada last year was $303,607 and is expected to fall slightly to $301,400 in 2009, before climbing to $306,300 in 2010