“There are clear signs that the Canadian housing market is softening,” according to a brief note released by CIBC today.
CIBC also says that the data suggests that “the surge in sales of high–end properties seen in early 2011 is unlikely to repeat—a factor that will work as a negative for prices in the near term. In fact, it is highly probable that the first quarter of 2012 will see the first year-over-year decline in prices since the recession.”
Although CIBC does not foresee a crash, they believe prices will level off in the near future and “start trending downward modestly.” Longer-term, as interest rates rise the most likely scenario is that prices will decline, “probably in the magnitude of 10%-15%.”
Indeed a softening in house prices in the next year or so is a necessary condition for such a soft-landing scenario. If the pace of house price increases accelerates during that period, then a year or two from now the likelihood of a violent price correction will be higher than it is now.
Read the research note here
TD foresees a similar pullback in house prices in today’s release as well:
Despite 2011 having had some nasty twists and turns for the global economy and financial markets, Canada’s housing market managed to turn out a respectable 2.2% gain in sales and 7.2% gain in prices relative to 2010. This speaks to both the relative stability of the Canadian economy and the confidence of Canadian consumers.
However, 2012 is likely going to be a bumpy ride as Canada is not without its share of headwinds going forward. The first half of this year will likely see housing activity pullback further from its current level alongside both global and domestic economic conditions, while the second half of the year is likely to see some improvement as those same factors improve.
In general, the persistence of a low interest rate environment through 2012 should help keep the housing market aloft as buyers continue to take advantage of fresh lows in mortgage rates. However, this will only delay the inevitable as the normalization in interest rates in 2013, which will lead to a more sustained correction in both sales and prices
Read the report here
In BMO’s reporting of the latest housing sales stats, they find the housing market “is broadly balanced on a national basis. The supply of existing homes for sale is a fully unremarkable 5.8 months, and the ratio of new listings to sales is also well within long‐term norms.”
BMO predicts an uneventful “flat” year:
Debt‐heavy households are expected to curb their appetite for mortgages, pointing to some further moderation in housing in 2012. We look for both sales and prices to be roughly flat this year. That could be just what the policy doctor ordered, allowing incomes to catch up to higher prices.
Update: January 17, 2012
Here’s Scotia Capitals viewpoint in their latest housing news flash:
Historically low interest rates remain a powerful draw for Canadian homebuyers and real estate investors. Nonetheless, we expect the weakening trend in employment growth since the late summer could moderate demand somewhat in the coming months. With market conditions largely balanced, look for average home prices to be fairly flat in the year ahead.
The picture painted by the latest statistics on Canadian housing continues to be consistent with an overall market that is showing moderation on nearly all fronts. Home resales grew a little stronger (2.2%) than we expected (1.4%) last year but not dangerously so. At the end of 2011, the national and the vast majority of local markets remained balanced.
This is keeping price gains on a moderating path. The earlier troubling surge in prices in Vancouver is so far unwinding in an orderly fashion – although very strained affordability in this market will maintain intense stress on local homebuyers in the near term.
We expect that widespread moderation will be sustained in 2012. Our latest projections published in November call for minimal growth in both home resales (0.4%) and prices (0.5%) overall in Canada, with strength in markets such as Alberta and Saskatchewan more than offsetting some softening in British Columbia.
Their chart shows that Vancouver had the greatest annual price gain of +14.3%, while Edmonton prices were down -0.7%.