Cdn Housing Outlook: Soft Landing, Risk of Turbulence

Canada’s housing market is on track for a soft landing in the year ahead according to a new report issued today by BMO. That’s not to say that the ride might not get a little bumpy, warns Sal Guatieri, Senior Economist.

Tailwinds helping propel the housing market include:

  • Low mortgage rates
A weak global economy and Europe’s debt crisis will likely
keep the Bank of Canada on the sidelines until early 2013,
while further easing measures by the Federal Reserve
should supress long-term rates in both countries, thereby
supporting affordability.
  • Relatively low unemployment
Canada’s unemployment rate  is  expected  to  remain near
the current 7.3% through 2012, about a percentage point
below its two-decade norm, supporting homebuyer confidence.
  • Strong immigration
More international migrants came to Canada in 2010 than
at anytime in the past half century, supporting demand
especially in major urban areas.

Please fasten your seatbelts

The housing market also faces several headwinds, including:

  • High prices
Prices have risen twice as fast as incomes in the past
decade, lifting the current ratio 16% above its norm.

Although the current overvaluation is below levels that
triggered price corrections in Canada in 1989 and the U.S.
in 2006, it will remain a thorn in the side of first-time

For bargain hunters, Canadian houses, on average, cost a
record 2/3 more (in local currency terms) than U.S. houses.

  • Elevated household debt
Mortgage growth is expected to moderate as Canadians
turn more cautious in managing their debt. Despite slower
personal credit growth, household debt hit a record 1½-
times disposable income in Q2, as residential mortgages
continued to outrun income.
  • Slowing employment
Job and income growth should moderate next year, as the
economy is expected to grow just 1.8% versus about 2.2%
this year.

The report continues:

The upshot is that home sales are likely to remain steady in 2012. Prices should also stay put, similar to Alberta’s experience of the past four years following its boom.

However, the resource-rich provinces, notably Alberta and Saskatchewan, should outperform other regions since their economies are expected to grow the fastest.

You can read the entire report here

2 responses to “Cdn Housing Outlook: Soft Landing, Risk of Turbulence

  1. Hi Mike

    BMO has represented some of their data in a highly misleading manner. Note the ratio of house price to personal income in the graph you’ve included in the post. If it’s a ratio, why has it been normalized at 100? When was it normalized and why? If you look only at the ratio, as I have, it tells a very different story. I’ve posted what it SHOULD look like here:

    BMO has been more than a bit sneaky with some of their graphs.

  2. Thanks for bringing that to light, Ben! Do you have the non-normalized US figures for a direct comparison?

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