Scotia: No Major Cracks Yet In Canada’s Housing Market

Despite increased global economic and financial market turbulence, low interest rates continue to attract homebuyers and investors according to Scotia Capital’s research note released today.   (Anyone else find the use of the word ‘Yet’ in their title a little unsettling?  Or perhaps it’s to emphasize just how resilient the Cdn RE market continues to be?)

While the overall Canadian market was up 15% y/y according to the preliminary figures, conditions vary across the country. The report states:

Toronto remains one of the hottest markets in the country, with strong demand and a shortage of listings. Meanwhile, the Calgary and Edmonton housing markets continue to gradually recover. Conditions remain much softer in Vancouver, with a combination of weak sales and rising listings. Most other markets are fairly steady. Of note, Winnipeg reported its best September sales performance in 108 years last month, perhaps owing to balmy temperatures or excitement over the return of the Jets

Regarding new construction:

Meanwhile, homebuilders are becoming a bit more cautious. Residential building permits — a leading indicator of housing starts — declined 10% m/m in August, though remained at a high level of 191,000 units.

Keep in mind the retrenchment in permit demand in August was primarily in multiunit projects, largely in Ontario and Quebec. This is a notoriously volatile series given the size and long lags involved in major condominium projects.

Multi-unit permit demand fell even more sharply in February and April of this year, only to bounce back strongly the subsequent month. In any case, we would welcome a somewhat slower pace of housing construction.

Housing starts are currently tracking around 195,000 units, below their 10-year average of 205,000 but nonetheless above long-term sustainable levels based on underlying demographic and household formation trends estimated at around 180,000.

To date, high levels of construction are being supported by strong new home sales. However, if housing demand cools more sharply in the coming months — a clear risk given waning consumer confidence and a slower pace of private sector hiring — builders could be left with an oversupply of empty units.

Canadian Housing Starts data for September will be released on October 11th.

TD also forecast in their report today that housing starts will slow and they see the continuation of low mortgage rates limiting the downside risk facing the Canadian housing market.

To read Scotia Capitals report: click here
To read TD’s report: click here

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