‘Tug-of-War’ in Canadian Real Estate Market

In the next year, Canadian house sales and prices should ‘hold fairly steady’ according to TD’s research note released on the heels of CREA’s September statistics update.

TD states the the persistence of low mortgage rates has helped offset adverse influences such as the new mortgage eligibility rules, economic uncertainty, and a growing saturation of the first-time home buyer category.

While sales have receded so far this year, prices continue to increase. However, TD says that this is expected, “as there is usually a lag between sales weakness and the corresponding price adjustment.”

TD highlights the tug-of-war action in the Canadian real estate market between low interest and mortgage rates and only modest economic, income and employment growth. With both push and pull momentum, TD expects both prices and sales to hold fairly steady, relative to current levels, over the next year.

‘Steady’ seems to be the adjective best describing the Canadian market as Scotia Bank had a similar viewpoint in their latest Housing News Flash:

Continuing uncertainty over the global economic outlook and highly volatile financial markets have yet to contribute to any notable slowing in Canada’s housing market. In fact, MLS home sales picked up almost 3% m/m in September after two months of relatively flat activity…As usual, conditions vary across markets. Activity in Toronto remains particularly strong, demand in Calgary is picking up, while Vancouver is cooling down.

Generationally low interest rates continue to entice homebuyers, even as Canadians adopt a more frugal approach to discretionary retail spending. An expected slower pace of hiring in the coming months could keep some potential first-time and move-up buyers on the sidelines for the time being, dampening overall demand. For now, however, we anticipate more of the same (i.e. relatively steady sales and pricing).

RBC finds September’s data “reassuring” as it speaks to the confidence Canadians have about making large financial purchases despite renewed turmoil in global financial markets.

Their report continues:

While further, more acute bouts of global anxiety could unsettle Canadian homebuyers, we believe that the confidence they expressed to this point indicates a greater focus on domestic economic conditions and market fundamentals than volatility taking place outside of Canada’s borders. In this context, and based on our reading of the market fundamentals and outlook for the Canadian economy, we remain of the view that Canada’s housing market is in transition to a more moderate and sustainable pace of activity.

Steady as she goes.

One response to “‘Tug-of-War’ in Canadian Real Estate Market

  1. BMO’s Bottom Line
    October 17, 2011

    Canadian housing continues to look balanced and healthy, as low mortgage rates and a falling jobless rate are offsetting weaker consumer confidence and tighter mortgage rules. We continue to expect sales and prices to cool in the year ahead, but the landing should be a soft one.

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