Canadian Housing Outlook: July 2011

Below is a look at different economists’ view of the Canadian housing market and their take on CREA’s most recent forecast and news release. These are just some highlights – you can read the entire reports linked under each bank.

TD Economics
Canadian Resale Housing Activity (August 16, 2011)

• Less favourable economic fundamentals, combined with new mortgage rules in place, are beginning to clip the wings of the Canadian housing market activity. With uncertainty permeating markets regarding the state of the global economic recovery, we continue to expect that real estate activity with temper over the next 18-24 months.

• With the U.S. Fed on the sidelines until mid-2013, the Bank of Canada will have its hands tied in how much it can raise its overnight rate. The persistence of low borrowing conditions will support continued housing activity. However, the expected housing market adjustment will be only pushed back to when rate hikes kick in.

• With their recent build-up in housing activity and prices, Toronto and Vancouver are thought to be particularly vulnerable relative to other major markets.  In July, we saw sales and prices stay flat or retreat in both of these two urban centres. Going forward, a correction is ripe for these cities in order to bring both markets in line with balanced territory. However, we expect such a retreat in prices and sales to be gradual in nature taking place over several quarters, with the brunt occurring in late 2012 into early 2013.

CIBC World Markets
Canadian Housing – A More Relaxed Market (August 16, 2011)

Overall the picture that is emerging is of a relaxed market. The realization that the Bank of Canada will not be raising interest rates in the coming months is working to remove any sense of urgency to front-load activity. At this point we do not see any catalyst that will change the current trend in any dramatic way.

The extension of a low interest rate environment will work to support activity, while some slowing in overall economic activity will pull to the other direction. Overall we see a market that is likely to stabilize in the coming months with a limited change in sales activity and a relatively stable price environment.

The average house price, as measured by CREA, rose by 9.3% year-over-year in July—the strongest increase since April 2010. This figure, however, overstates the real health of the housing market. Note that demand in July 2010 was exceptionally weak—a fact that worked to exaggerate the increase observed in July 2011.

More importantly, on a month-over-month basis, prices have been on a clear softening trend since February, and are down by a cumulative 4.2% over the past two months. While we expect the month-over-month figure to rise in the coming months as we enter the fall buying season, the overall trend is of a softening price environment.

Cdn housing takes a licking, keeps on ticking (August 16, 2011)

In a world seemingly awash in negative economic surprises in 2011, one positive surprise has been the resiliency of Canada’s housing market.

Canadian existing home sales rose 12.3% from year‐ago levels in July, managing to basically hold steady from the prior month in seasonally adjusted terms (down 0.1% m/m). While the strong year‐over‐year growth is flattered by a weak year‐ago comparison (when the HST was introduced in B.C. and Ontario), sales are certainly faring better than expected earlier this year.

Recall that tighter mortgage insurance rules were implemented in March, yet sales held firm through the spring. While new listings have also risen recently, the backlog of unsold homes just nudged up last month to 6.1 months’ supply (from 6.0 in June, both in seasonally adjusted terms), almost bang on the long‐run average. Even with a balanced market, average prices remained strong,
rising 9.3% from year‐ago levels.

While some of the strength in average prices reflects a shift of sales to pricier cities, even the weighted average increase in prices remains solid at 8% y/y. Suffice it to say that not many analysts were looking for average home price gains of 8% at the start of 2011.

Regionally, the majority of cities saw sales increase in July, with 10 of the 25 largest cities posting double‐digit yearly gains.   Seven of those 10 cities were in the HST‐affected B.C. or Ontario markets. The gains weren’t spread across the country, as sales declined in eight cities last month. Similarly, while four cities had double‐digit year‐over‐year price increases (led, as usual, by Vancouver’s 15.8% sprint), there were seven cities with price declines, including Calgary, Victoria, Regina and London

Housing News Flash (August 16, 2011)

Canadian housing activity over the summer appears to have settled into a steady, more sustainable trend.
Seasonally-adjusted MLS home sales were essentially flat in July. Overall, sales volumes have trended
marginally lower since February, and are currently tracking in line with the average of the past decade.

A strong pace of hiring to date this year is supporting housing demand. The economy has generated an average of 28,000 new jobs a month this year, mostly full-time. Meanwhile, historically low variable and fixed mortgage rates are helping to maintain affordability despite record or near record home price

It remains to be seen how the recent volatility in financial markets and mounting concern over global growth prospects will impact consumer confidence and home sales in the coming months. However, barring a major pullback in hiring, conditions still appear reasonably supportive.

Some ‘move-up’ buyers, particularly at the high-end of the housing market, may now be more inclined to stay on the sidelines. However, it also now appears that borrowing costs will remain lower for a longer period of time — good news for both new homeowners and those renewing mortgages.

2 responses to “Canadian Housing Outlook: July 2011

  1. Flaherty, Carney to provide economic update
    but independent economists blocked

    Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney will update Parliament on the state of the Canadian economy Friday, but Conservative MPs blocked testimony from independent economists so as not to “worry Canadians.”

    “It’s imperative, in my opinion, that we not do anything that might worry Canadians. And I think that hearing from the Minister of Finance and the Bank of Canada will help to reassure them, as they should be, that there is concern, but that we are proceeding, as parliamentarians, in their interests,” explained Mr. Flaherty’s parliamentary secretary.

    Another Conservative MP suggested the comments from Mr. Flaherty will be more reliable than what independent economists have to say.

    “I want to make sure that we don’t have people coming into this meeting and start speculating and start giving their opinions and their impressions which are based on what? A crystal ball?” he told MPs. “I think it’s better that we stick to the facts and I think the two people who can provide the best facts are the Finance Minister and the Bank of Canada.”

    Read more in the Globe & Mail

  2. From CBC’s facebook:

    CBC’s Marketplace is looking for rental housing horror stories. Are you living with bugs or vermin that your landlord won’t get rid of? Is your apartment falling apart and your property manager won’t fix a thing? Have you had mold but can’t get anyone to come clean it up? If youve got a beef, let the show know:

    I hope that one day they’ll cover the other side of the story too – there are some awful tenants out there …

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