Nobody knows for sure. And there are lots of opinions out there.
First off though, are we talking nominal prices or real prices? ?
Well, since TREB and most everybody else, relates to real estate prices in nominal terms (albeit with its major flaws), I’ll do the same, for simplicity’s sake. Plus, presumably those who ‘know’ can easily adjust for inflation in their heads.
Back to prices – my opinion is that interest rates will have the greatest impact on real estate prices in the short term. Obviously, a strong inverse relationship exists.
As interest rates start creeping up and they eventually will. It will be difficult, if not impossible, for real estate prices not to get squeezed down. For 2015, it’s still early but I expect nominal prices to return somewhere in the 0% to 5% range because I don’t expect to see interest rates to rise sharply, as yet.
The other contributing factors are immigration (a type of inflation); inflation (inflation); overpriced homes (evidence of inflation); and the economy (the way to hide inflation).
Did I mention that interest rates (inflation’s cousin) will have the greatest impact on real estate prices?
Anyway, let’s go through the other 4 factors determining real estate prices. Altogether, they (these 4 below) might be as impactful to real estate prices as interest rates, but nobody knows for sure.
Immigration – Picture this: a large airplane lands once per day, and it is full of immigrants, with money, for the most part, who decide to immediately settle in the Golden Horseshoe. Every day. These folks are buyers! Ya, they drive up prices. Every day. Large airplane. It’s not stopping any time soon. It’s a reason those bidding wars ever got started (note: they’re still happening often in many neighbourhoods, like, Bloor West Village, Swansea, Etobicoke, Downtown Toronto, the Junction, Waterfront, Roncesvalles (aka Roncey), Trinity Bellwoods, Riverdale, Leaside, the Beaches, Oakville, Mississauga, etc.)
Inflation – So long as our dear government keeps printing money and giving it away to the banks, stuff (for stuff, think: lumber, plastic, metals, electricity, oil and gas, labour, etc., i.e. everything you need to actually build (or renovate) a house) is just going to cost that much more!
Overpriced homes – There comes a time where you just can’t afford it, even if interest rates are at 0%, like Japan, or our friends south of the border, right around the time of their real estate ‘crash’, oh, about 5 years ago. Prices here in the GTA are getting to the point where the upside sure seems overshadowed by the downside, at least in the short term.
The Economy – One thing I want to point out is that our economy is subject to the World Economy. I say this because there are a great many creative events worldwide which could have heavy implications for us and our tiny economy (just less than 1% of the world’s economy). Yes, we are a big country, but a tiny populace (thus the large airplane; every day). As for our economy, it’s relatively stable, but incomes aren’t skyrocketing anymore and the big bonuses are being reigned in somewhat. Incomes are rising modestly.
In short, the Toronto Real Estate Board (TREB), half way through 2014, is pretty much a lock to see 2014 prices increase by 6% or 7% and I expect to see 0% to 5% increases for 2015.