“Forecasting is the process of making statements about events whose actual outcomes (typically) have not yet been observed. A commonplace example might be estimation of some variable of interest at some specified future date.
“Risk and uncertainty are central to forecasting and prediction; it is generally considered good practice to indicate the degree of uncertainty attached to forecasts. In any case, the data must be up to date in order for the forecast to be as accurate as possible.” — Wikipedia.
WinnipegREALTORS® does have a very up-to-date MLS®, or Multiple Listing Service®, and it is not only rich in historical data and authenticity, but offers a number of solid indicators to help the 110-year-old association gauge the status of the market.
As is the case with other real estate associations or boards across the country, WinnipegREALTORS® decided seven years ago to do its own forecast breakfast in order to provide the public with information about how it felt the MLS® market would perform in the coming year. It has been an interesting process, which has included an impressive list of keynote speakers to deliver insights on primarily economic factors that influence and shape the outcome of real estate sales activity.
Last year, CIBC deputy chief economist, Benjamin Tal, impressed the over 300 people in attendance with an entertaining and thought-provoking presentation. He recognized Winnipeg’s stable economy and felt that it will never suffer the sudden downswings often experienced in other Canadians cities. He said Winnipeg is more slow and steady, even boring at times, but a safer bet if you want to minimize risk.
Tal predicted interest rates would not be going up in the next couple of years due to problems with the U.S. economy. He felt Canada could not stray too far from its rock-bottom interest rates.
To be honest, interest rates have clearly been a boon to real estate sales activity over the past few years. They make housing more affordable even when prices go up. The increasing concern of the federal government about Canadians taking on too much debt changed the policy landscape in 2012. Finance Minister Jim Flaherty brought in more stringent mortgage regulations, reducing the allowable amortization period from 30 to 25 years.
So how did the WinnipegREALTORS® 2012 forecast turn out and what is it suggesting will happen in 2013?
Either by simple extrapolation from 2011, or a stroke of genius or just blind luck, the forecast numbers were quite close to the actual results with total MLS® dollar volume and home price increases being exactly as predicted. Condo prices went up a few percentage points higher than predicted, but they had been relatively flat the year previously.
WinnipegREALTORS® predicted home sales would be down between zero to two per cent. By the end of 2012, home sales had dropped just under two per cent. The consistency and stability of Winnipeg’s real estate market, coupled with good MLS® indicators, helps remove some of that risk that Wikipedia refers to in its definition of forecasting.
WinnipegREALTORS® is predicting home sales may hold even with 2012 on the upper range, but could also fall back as far as four per cent due to the tighter mortgage environment. It is more difficult now for first-time buyers to finance the purchase of a home. Even first-time sellers who have a 30-year mortgage may not have built up enough equity to handle the purchase of a move-up house that now requires a mortgage at the new 25-year amortization period.
One of the uncertainties associated with the effect of the tighter mortgage regulations is that they were not implemented until July, so the busy spring market was not only unaffected, but could have been accelerated by first-time buyers who had their last chance at securing a mortgage amortized over a 30-year period.
As for home prices, Winnipeg remains one of the tightest markets in the country based on a low rental vacancy rate and continued population growth due to strong immigration numbers. If there is a drop off in the lower price segment of the market due to mortgage regulations, the average price will be skewed upward even with less sales activity. So both home and condo prices are expected to move up modestly in the low single-digit percentage range. Overall, MLS® dollar volume should still reach $3 billion for the third year in a row, assuming that sales do not fall off too dramatically, if at all.
The bottom line is that Winnipeg’s market fundamentals remain intact for 2013. Unemployment numbers are low, the labour force has a high participation rate and jobs are still being created. Immigration, while expected to slow down, is still a major driver of the housing market driver — people need a place to live.
As with any forecast, WinnipegREALTORS® does monthly and year-to-date market updates to see how its numbers are holding up as the year unfolds. Even if sales drop off a little bit, the year should finish in line with the other best two years experienced in the history of WinnipegREALTORS®. Only 2007 and 2011 have had more sales than 2012, but by a very small margin. In the end, 2012 had the highest MLS® dollar volume sales ever at $3.2 billion.